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4 0 5 9 0
SEC Registration Number
M E T R O P A C I F I C T O L L W A Y S C O R P O R A T I O
N ( F o r m e r l y F i r s t P h i l i p p i n e I n f r
a s t r u c t u r e , I n c . ) A N D S U B S I D I A R I E
S
(Company’s Full Name)
1 0 t h F l o o r , M G O B u i l d i n g , L e g a
s p i c o r . D e l a R o s a S t s . , M a k a t i
C i t y
(Business Address: No. Street City/Town/Province)
Mr. Christopher Daniel C. Lizo (632) 888-0888 (Contract Person) (Company Telephone Numbers)
1 2 3 1 A A C F S 0 9 2 4
Month Day (Form Type) Month Day (Calendar Year) (Annual Meeting)
–
(Secondary License Type, If Applicable)
– I, VI
Dept. Requiring this Doc. Amended Articles Number/Section
Total Amount of Borrowings
252 P7,870.5 million $37.0 million
Total No. of Stockholders Domestic Foreign
To be accomplished by SEC Personnel concerned0
File Number LCU
Document ID Cashier
S T A M P S
Remarks: Please use BLACK ink for scanning purposes.
SEC Number 40590
File Number
________________________________________________
METRO PACIFIC
TOLLWAYS CORPORATION
________________________________________________
(Company‟s Full Name)
10th
Floor, MGO Building
Legazpi cor. Dela Rosa Streets, Makati City 1600
_________________________________________________
(Company‟s Address)
(632) 888-0888
______________________________________
(Telephone Number)
December 31, 2010
______________________________________
(Fiscal Year Ending)
(month & day)
SEC Form 17-A
(Annual Report)
______________________________________
Form Type
Not Applicable
______________________________________
Amendment Designation (if applicable)
Not Applicable
______________________________________
Period Ended Date
Not Applicable
__________________________________________________
(Secondary License Type and File Number)
1
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 17-A
ANNUAL REPORT PURSUANT TO SECTION 17
OF THE SECURITIES REGULATION CODE AND SECTION 141
OF CORPORATION CODE OF THE PHILIPPINES 1. For the calendar year ended December 31, 2010
2. SEC Identification Number 40590
3. BIR Tax Identification No. 000-217-282
4. Exact name of registrant as specified in its charter
METRO PACIFIC TOLLWAYS CORPORATION
5, Metro Manila, Philippines 1600
Province, Country or other jurisdiction Postal Code
of incorporation or organization
7. 10/F MGO Bldg. Legaspi cor. Dela Rosa Sts. Makati City, Philippines
Address, including postal code, telephone number, FAX number including area code, of registrant‟s
principal offices
8. (632)888-0888
Registrant‟s telephone numbers, including area code
9. N/A
Former name, former address, and former fiscal year,
if changed since last report.
10. Securities registered pursuant to Sections 4 and 8 of the Revised Securities Act
Number of Shares of Common Stock
Title of Each Class Outstanding & Amount of Debt Outstanding
Number of Shares Issued and Subscribed 4,978,054,788
Amount of Debt Outstanding None
11. Are any or all of these securities listed on the Philippine Stock Exchange?
Yes [ x ] No [ ]
12. Check whether the registrant:
a) has filed all reports to be filed by Section 17 of the SRC and SRC Rule 17 thereunder or Section
11 of the RSA and RSA Rule 11 (1)-1 thereunder and Sections 26 and 141 of the Corporation Code
of the Philippines during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports);
Yes [ x ] No [ ]
b) has been subject to such filing requirements for the past 90 days.
Yes [ x ] No [ ]
2
13. Aggregate market value of the voting stock held by non-affiliates:
Php59,742,606 (7,965,681 shares @ Php7.50 per share as at February 28, 2011)
3
TABLE OF CONTENTS
Page No.
PART I – BUSINESS AND GENERAL INFORMATION
Item 1. Description of Business 4
Item 2. Description of Property 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 13
PART II – OPERATIONAL AND FINANCIAL INFORMATION
Item 5. Market for the Company‟s Common Shares and
Related Stockholders Matters 14
Item 6. Management‟s Discussion and Analysis or Plan of Operation 16
Item 7. Financial Statements 41
PART III – CONTROL AND COMPENSATION INFORMATION
Item 8. Directors and Executive Officers 42
Item 9. Executive Compensation 47
Item 10. Security Ownership of Certain Beneficial Owners and Management 48
Item 11. Certain Relationships and Related Party Transactions 49
PART IV – CORPORATE GOVERNANCE
Item 12. Corporate Governance 50
Item 13. Information on Independent Auditors and Other Related Matters 58
PART V – EXHIBITS AND SCHEDULES
Item 14. Exhibits and Reports on SEC Form 17-C (Current Report) 60
SIGNATURES 62
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES 63
4
Part I -- BUSINESS AND GENERAL INFORMATION
Item 1. DESCRIPTION OF BUSINESS
Overview
Metro Pacific Tollways Corporation (“MPTC” or “the Company”) is a publicly listed infrastructure company
focusing on developing toll roads in the Philippines through public-private partnerships. With the North
Luzon Expressway and the Subic-Clark-Tarlac Expressway in its toll road portfolio, MPTC is currently the
biggest toll road developer in the country with more than 800 lane-kilometers of toll roads under its
management.
MPTC‟s common shares are listed and traded on the Philippine Stock Exchange. The Company‟s market
capitalization is approximately Php37,339 million (US$852 million) as at February 28, 2010. For the year
ended December 31, 2010, revenues totaled Php5,858 million and net income attributable to equity holders
of Php1,427 million.
MPTC‟s subsidiary, Manila North Tollways Corporation (MNTC), operate under the jurisdiction of the
Supplemental Toll Operations Agreement between MNTC, Philippine National Construction Corporation
(“PNCC”) and the Republic of the Philippines through the Toll Regulatory Board (“TRB”), which
jurisdiction extends, among other things, to approving major services that we offer and toll rates that MNTC
charges.
The Company‟s principal executive offices are located at the MGO Building, Legazpi corner Dela Rosa
Streets, Makati City, Philippines and our telephone number is +(632) 811-4809. Our website address is
www.mptc.com.ph. The contents of our website are not a part of this annual report.
Historical Background
MPTC was incorporated on February 24, 1970 originally under the corporate name, City Resources (Phil.)
Corporation (“CRC”), in the Philippines and registered with the Philippine Securities and Exchange
Commission (“SEC”). On January 31, 1994, MPTC sold, transferred and conveyed the mining rights over all
of its mineral properties located in the municipalities of Paracale and Labo, both in the Province of
Camarines Norte. On March 24, 1994, the Securities and Exchange Commission approved a change in its
primary purpose from mining company to that of a holding company. The primary purpose of MPTC is to
acquire by purchase, exchange, assignment, gift or otherwise, and to hold, own and use for investment or
otherwise operate, manage, enjoy and dispose of, any and all properties of every kind and description and
whenever situated, as and to the extent permitted by law.
In 1994, the Company had no operations and trading in its common shares was suspended. On November 17,
2004, SEC revoked the registration of securities and permit to sell securities to the public issued to CRC for
its failure to comply with reporting obligations under the Securities Regulation Code and the Implementing
Rules and Regulations.
CRC filed a petition for review where it stated that it will revive its operations. On September 17, 2007,
pursuant to a Deed of Assignment (“DOA”), First Philippine Holdings Corporation (“FPHC”) and Benpres
Holdings Corporation (“BHC”), then shareholders of CRC, assigned and conveyed to CRC, by way of
absolute ownership and free from all liens and encumbrance, their shares in First Philippine Infrastructure
Development Corporation (“FPIDC”) in exchange for 4,970,570,627 newly issued shares of CRC. FPHC
and BHC intend CRC to be a backdoor listing vehicle for their investments in the tollway business. After the
exchange, FPHC became the ultimate parent company of CRC and that FPIDC became a wholly owned
subsidiary of CRC. FPIDC owns 100% of Luzon Tollways Corporation (LTC), 67.1% of Manila North
Tollways Corporation (“MNTC”) and 46% of Tollways Management Corporation (“TMC”).
On December 26, 2007, the suspension of trading was lifted by the Philippine Stock Exchange (PSE) after
compliance by CRC of the requirements of the PSE and SEC. On January 11, 2007, SEC set aside its order
to revoke CRC's registration of securities and permit to sell securities to the public.
5
Prior to the execution of the DOA, the Board of Directors (“BOD”) and the then Stockholders of CRC
approved and authorized the following amendments to the Articles of Incorporation: (a) change in the
corporate name of the parent company from City Resources (Phil.) Corporation to First Philippine
Infrastructure, Inc. (“FPII”): (b) decrease in the number of directors from eleven (11) to seven (7); and (c)
increase in the authorized capital stock from Php335 million divided into 335,000,000 shares with a par
value of Php1 per share to P5,400 million divided into 5,400,000,000 shares with the same par value.
On September 17, 2007, the SEC approved the above amendments to the Articles of Incorporation.
On August 26, 2008, FPHC and BHC entered into a Share Purchase Agreement (“SPA”) with Metro Pacific
Investments Corporation (“MPIC”), a publicly-listed Philippine corporation, to sell, assign and transfer to
MPIC all of their respective rights, title and interest in and to their shares in FPII. On November 13, 2008,
FPHC and BHC sold their 2,534,991,020 and 2,435,579,607 shares, respectively, for a total purchase of
P12,263 million resulting in a 99.84% ownership interest of MPIC in FPII.
MPIC is 97.3% owned by Metro Pacific Holdings, Inc. (“MPHI”). MPHI is a Philippine corporation whose
stockholders are Enterprise Investment Holdings, Inc. (“EIH”) (60.0%), Intalink B.V. (26.7%) and First
Pacific International Limited (13.3%). First Pacific Company Limited (“FPC”), a company incorporated in
Bermuda and listed in Hong Kong, and which under Hong Kong Generally Accepted Accounting Principles
require FPC to account for the results and assets and liabilities of EIH and its subsidiaries as FPC group
companies in Hong Kong. On such basis, FPC is referred as the ultimate parent company of EIH, MPIC and
MPTC.
The BOD and stockholders of the Company approved the change in the corporate name from “First
Philippine Infrastructure, Inc.” to “Metro Pacific Tollways Corporation” on February 12, 2009 and the
change in number of directors from seven (7) to nine (9) on May 29, 2009, which was both approved by the
SEC.
On September 24, 2010, the BOD approved the following: (a) increase in the authorized capital stock from
5,400,000,000 common shares to 10,000,000,000 common shares. The approval of the SEC is still pending
as of February 23, 2011; (b) increase in the number of directors from nine (9) to (11) which was approved by
the SEC on January 11, 2011.
Recent Developments
NLEX Harbor Link
On June 5, 2010, MNTC completed and started commercial operations of NLEX Segment 8.1 or the NLEX
Mindanao Avenue Link, a 2.7-kilometer road designed to link Mindanao Avenue to the North Luzon
Expressway. This road forms part of the NLEX Harbor Link, which will connect NLEX to the port area in
Manila through Segment 9, a 2.4-kilometer from the end of Segment 8.1 extending westward to MacArthur
Highway in Valenzuela City, and Segment 10 a 5.5-kilometer partly at-grade partly elevated road from
MacArthur Highway in Valenzuela City to C-3 Road in Caloocan City using the alignment of the railway
tracks managed by the Philippine National Railways and North Luzon Railways Corporation.
SCTEX Concession
In 2010, MNTC participated in a public bidding conducted by the Bases Conversion and Development
Auhtority (“BCDA”) for the right to manage, operate and maintain the Subic-Clark-Tarlac Expressway
(SCTEX) on an „as is, where is” basis for a period until October 30, 2043. MNTC‟s technical proposal met
the requirements of BCDA but its financial proposal failed to meet the minimum financial requirements.
However, MNTC was given the opportunity to improve its financial proposal and, as a result, BCDA
formally awarded MNTC in June 9, 2010, the right to enter into a concession agreement with them for the
management, operation and maintenance of SCTEX. On November 8, 2010, the parties entered into a
Concession Agreement under which BCDA granted MNTC the usufructuary rights to and the right to
manage, maintain and operate the 94-kilometer SCTEX for a period of 25 years, extendable by another 8
years. In granting the concession, BCDA has also assigned to MNTC its rights under the Toll Operations
Agreement (TOA) it signed with the Toll Regulatory Board including the right to collect toll fees. The
6
assignment is subject to certain conditions including, among others, the necessary Philippine Government
approvals and the execution of a STOA.
As of February 28, 2011, the parties are still in the process of obtaining certain consents and formalizing the
STOA and therefore the SCTEX had not been assigned and turned over to MNTC.
NLEX-SLEX Connector Road
On June 5, 2010 the Department of Public Works and Highways (“DPWH”) accepted MPTDC‟s unsolicited
proposal for the North Luzon Expressway (NLEX) – South Luzon Espressway (SLEX) Connector Road
project (“the Connector Road Project”), subject to submission of requested additional documents and further
discussion with DPWH. MPTDC submitted the additional documents and continues to discuss with DPWH
and other Philippine government agencies regarding the Connector Road Project. Following the submission
and acceptance of the unsolicited proposal to DPWH, MPTDC was granted the „original proponent‟ status
for the Connector Road Project. The Connector Road Project is a 13.5-kilometer elevated toll road which
will connect the north to south corridor. As of February 28, 2011, MPTDC continues to discuss with DPWH
and other government agencies.
Acquisition in MSIHI
On July 20,2010, MPTC entered into a Share Purchase Agreement (“SPA”) with a third party for the
acquisition of 148,000 shares in Metro Strategic Infrastructure Holdings, Inc. (“MSIHI”), representing 37%
of the outstanding capital stock of MSIHI, for a purchase price of P51.0 million. An amendment to the SPA
was made on August 30, 2010., reflecting the allocation of the purchase price as follows: (a) P14.8 million as
consideration for the MSIHI shares, and (b) P36.2 million as consideration for the assignment of MPTC of
the third party‟s deposit for future stock subscription in MSIHI. On August 30, 2010, the parties signed the
Deed of Absolute Sale of Shares and the Deed of Assignment of the deposit for future stock subscription.
On December 30, 2010, MPTC acquired additional 80,000 shares of or 20% interest in MSIHI from a third
party for P8.0 million and deposited P19.6 million for future stock subscription at a purchase price of
equivalent amount. MPTC now holds 57% of MSIHI, and a 1.54% indirect equity interest in Citra Metro
Manila Tollways Corporation (“CMMTC”).
CMMTC holds the concession for the South Metro Manila Skyway Project, the Stage 1 of which covers the
9.5-kilometer elevated toll road from Buendia to Bicutan; and of the upgrading of the 13.5-km at-grade toll
road from Magallanes to Alabang. Stage 1 has been operational since 1999. Stage 2 covers the 6.88-km
elevated section from Bicutan to Alabang as well as the continued rehabilitation of existing at-grade section
of the Skyway from Magallanes to Alabang at a cost of P10 billion.
MPTC will also acquire Metro Pacific Corporation (MPC)‟s 159,996 shares in MSIHI, representing an
additional 40 percent direct equity interest in MSIHI, under the same terms and conditions as the December
30, 2010 transaction.
Strategy
The key elements of our business strategy are:
Strengthen industry position as the country’s leading toll road developer. MPTC is the
industry‟s leader in terms of customer service excellence, project management, technological
innovation, contribution to socio-economic development and commercial success. MPTC plans to
further improve and expand its services available to its customers necessary for them to enjoy
expressway travel in NLEX and SCTEX. This can be achieved through the following: (i)
integration of toll collection systems of NLEX and SCTEX to decrease number of stops in toll
plazas from five to two; (ii) use of technology to decrease transaction time in toll plazas, shorten
incident response lead times, maintain high quality and prolong service life of pavements, and
encourage a more dynamic interaction with customers in various concerns such as electronic toll
collection products, local tourism, traffic enforcement, and incident response; (iii) pursue
initiatives that would promote ecological conservation such as solar-powered lighting, stone
mastic asphalt pavements, air quality and noise level monitoring, re-vegetation, etc.
7
Expand current toll road portfolio. The Company‟s expansion plan is a three-thronged approach
composed of: (1) design, construction, financing, operation and maintenance of new toll roads in
its existing concession such as the NLEX Harbor Link; (2) acquisition of stake in other toll road
concessionaires, and (3) obtaining new concessions for toll road projects opened for public-
private partnership bidding.
Maintain a robust financial position while enhancing shareholder returns. Cash flows
generated by the Company continue to improve through internal efforts to increase in traffic
volume and the approval of periodic toll rate adjustments, prudent management of capital and
operating expenditures, and capital restructuring in response to current economic conditions.
MPTC shall strive to generate more revenues other than toll fees and further improve operational
efficiency through synergies within the MPTC Group.
Subsidiaries and Associates
MPTDC
MPTDC, formerly First Philippine Infrastructure Development Corporation (FPIDC), is the assignee of
BHC and FPHC of all their rights, interests and privileges, in relation to the construction, operation and
maintenance of the Manila-Subic Expressways under a Memorandum of Understanding (MOU) signed on
February 8, 1994 by BHC and FPHC with Philippine National Construction Corporation (PNCC), Subic Bay
Metropolitan Authority (SBMA), Bases Conversion and Development Authority (BCDA), and several other
governmental and non-governmental entities. The Manila-Subic Expressways shall connect the Subic and
Clark Special Economic Zones to Metro Manila.
MNTC
MPTDC established MNTC jointly with PNCC for the sole purpose of implementing the rehabilitation of
the North Luzon Expressway (NLE) and the installation of appropriate collection system therein referred to
as the “North Luzon Tollway Project” or the “Project.”
The Project consists of three phases as follows:
Phase I Rehabilitation and expansion of approximately 84 kilometers (km) of the
existing NLE and an 8.8-km stretch of a Greenfield
expressway
Phase II Construction of the northern parts of the 17-km circumferential road
C-5 which connects the current C-5 expressway to the NLE and the 5.85-km
road from McArthur to Letre
Phase III Construction of the 57-km Subic arm of the NLE to Subic Expressway
In accordance with the Memorandum of Agreement (MOA) dated March 6, 1995 among MPTDC, SBMA
and BCDA, MPTDC undertook the immediate construction of the SBMA - Tipo Road (Segment 7) that
connects Tipo in Hermosa, Bataan to Subic. Under the MOA, SBMA authorized MPTDC to charge and
collect certain amount of entry fees from the motoring public for the use of Segment 7.
On April 5, 1997, a Provisional Operating and Maintenance Agreement (POMA) was signed to initiate the
collection process in Segment 7 under the terms and conditions of the Supplemental Toll Operation
Agreement (STOA) as discussed in Note 2 of the accompanying notes to the Audited Financial Statements
in Item 7.
Also pursuant to the MOA, Segment 7 was integrated to and formed part of the Joint Venture Agreement
(JVA) executed by PNCC and MPTDC. Accordingly, MPTDC executed a Deed of Assignment and
Conveyance on July 6, 2001 whereby MPTDC assigned, conveyed and transferred in favor of MNTC all its
rights, interests and privileges over Segment 7. On the same date, MPTDC and MNTC entered into an
Operation and Maintenance Agreement (S7 O&M) whereby MNTC appointed MPTDC as the Operator of
the Segment 7 toll road. On February 10, 2005, pursuant to the Operation and Maintenance Agreement
(O&M) between MNTC and TMC, an associate, TMC took over the operation and maintenance of Segment
7 from MPTDC. See Note 18 of the accompanying notes to the Audited Financial Statements in Item 7.
8
The construction of Phase I was substantially completed in January 2005. On January 27, 2005, the Toll
Regulatory Board (TRB) issued the Toll Operation Permit (TOP) for the operation and maintenance of
Phase I consisting of Segments 1, 2, 3 and including Segment 7 in favor of MNTC. Thereafter, MNTC took
over the NLE from PNCC and commenced its tollway operations on February 10, 2005.
On June 5, 2010, Segment 8.1, a portion of Phase II, which is a 2.7 km-road designed to link Mindanao
Avenue to the NLE, had officially commenced tollway operation. The remaining portion of Phase II is under
pre-construction works while Phase III of the Project has not yet been started as of February 23, 2011.
MNTC was incorporated in the Philippines on February 4, 1997. It is 67.1% owned by FPIDC, 16.5% by
Globalfund Holdings, Inc., 13.9% by Egis Projects SA and 2.5% by the Philippine National Construction
Corporation (“PNCC”).
TMC
TMC, incorporated in 2000, is the operator of the first phase of the NLEX Project under an Operations and
Maintenance Agreement (the “O&M Agreement”) with MNTC. In February 2005, pursuant to the O&M
Agreement, TMC took over the operations and maintenance of the first phase of the NLEX Project,
including Segment 7, from MPTDC. TMC operates the first phase of the NLEX Project using world class
tollway operations practices. Its scope of work includes toll collection and money handling, repairs and
maintenance, and safety and traffic management.
On March 2008, TMC, Egis Road Operation, FPHC entered into a joint venture agreement for the Subic-
Clark-Tarlac Expressway (SCTEX) Operation and Maintenance Project. The Project is for a period of six
months from the commencement of STCEX operation, March 16, 2008, and was renewed for another six
months ending March 16, 2009. This was further extended to April 27, 2010.
MSIHI
Metro Strategic Infrastructure Holdings, Inc. holds a 2.7% non-controlling interest in Citra Metro Manila
Tollways Corporation (CMMTC), the concessionaire for the Metro Manila Skyway (“Skyway”). The
Skyway system is composed of a 13.4-kilometer at-grade expressway from Makati City to Alabang,
Muntinlupa and a 16.4-kilometer elevated expressway from Makati City to Sucat, Paranaque.
Products and Services, Rates and Revenues
MPTC and MPTDC
MPTC and MPTDC‟s main source of revenues include share in earnings and guarantee fees on loans of
operating and associates, while the principal sources of funds are derived from collection of dividends as
well as management and guarantee fees from MNTC and TMC.
Dividend Policy of MPTC
MPTC and MPTDC‟s dividend is dependent on MNTC‟s dividend policy. MNTC‟s dividend policy is to
distribute unrestricted retained earnings distributable under Philippine law to its shareholders after making
reasonable provisions for prudent and proper reserves, including allowance for future capital expenditures,
working capital and taxes, and subject to the terms and conditions of the Omnibus Agreement and any other
provider of credit to MNTC.
As agreed upon by MNTC‟s shareholders, any funds available for dividend distribution shall be applied as
follows:
50.0% as dividends among the shareholders in proportion to their respective ownership percentage; and
50.0% as pro rata repayment of any outstanding principal and interest under the shareholders‟
subordinated loans to MNTC.
Under the Amended and Restated Shareholders‟ Agreement, no amount shall be distributed as dividends or
repayment of subordinated loans unless the PNCC Franchise Fee is paid in full and all covenants under the
Omnibus Agreement have been complied with.
9
MNTC and TMC
MNTC and TMC are service companies engaged in the operation and maintenance of the NLEX. Revenues
arise from the collection of toll fees from motorists plying the NLEX. It caters to motorists coming from the
Central and North Luzon and vice-versa. It is allowed to collect access fees from prospective investors in
commercial facilities along the NLEX primarily for the benefit and convenience of motorists.
Percentage of sales contributed by foreign sales
MPTDC, MNTC and TMC have no foreign sales.
Distribution methods of the products or services
MNTC‟s revenues are from manual toll fee payments which account for approximately 85% of toll revenues.
Electronic toll collection (ETC) products like EC tags and Easytrip for Class 1 vehicles (cars / vans) and
badges / cards for buses, trucks and jeepneys account for the balance of transactions in the NLEX.
Status of any publicly-announced new product or service
MNTC completed the construction and started commercial operations of Segment 8.1 of Phase 2, and has
completed the detailed engineering designs for Segments 9 and 10. Segment 8.1 is a 2.7-kilometer road that
will connect Mindanao Avenue to NLEX, south of the existing Valenzuela interchange. Total cost of the
project is about P2,100 million. Segments 9 & 10 cover approximately 8 kilometers and will connect
Segment 8.1 to C3 Road in Manila.
Competition
There is no competing toll road in the area covered by MNTC‟s concession.
Sources and availability of raw materials and the names of principal
MNTC‟s main supply contract consists of the Operation and Management Agreement (OMA) with Tollways
Management Corporation (TMC). TMC provides MNTC with the following operations and maintenance
services:
Collection of tolls from motorists at toll plazas, both in cash and electronic form, including the sale of
pre-paid toll cards and electronic toll collection subscription products at point of sale outlets;
Routine maintenance and repairs of the road and equipment; and
Management of the NLEX in order to, among other things, improve traffic flows, maintain road safety,
and enhance the facilities and services along the NLEX.
Disclose how dependent the business is upon a single customer or a few customers
A significant portion of revenues generated by TMC comes from MNTC for its operator‟s fee for NLEX and
from BCDA for SCTEX.
Transactions with and/or dependence on related parties
Related Party Nature of Transactions
Tollways Management Corporation Toll collection; operation and maintenance of the toll road
Egis Projects Philippines, Inc. Supply of spare parts and technology of the Fixed
Operating Equipment Component
Easytrip Services Corporation Supply, sales and marketing of transponders
Philippine National Construction Corporation Payment of percentage share in toll revenues
Smart Communications, Inc. Management services
Philippine Long Distance Telephone
Company
Lease of fiber optic cable network
10
Refer to Note 18 – Related Party Transaction to the accompanying audited financial statements found in
Item 7 for other details.
Licenses and Regulation
Principal terms and expiration dates of all patents, trademarks, copyrights, licenses, franchises,
concessions and royalty agreements held
Toll Operation Franchise
Presidential Decree No. 1113, which was enacted on March 31 1977, granted the first tollway franchise to
Construction and Development Corporation of the Philippines (“CDCP”), now known and referred to as
Philippine National Construction Corporation (“PNCC”).
Under this franchise, CDCP (now PNCC) was granted the right and authority to construct, operate and
maintain toll facilities from Balintawak to Carmen, Rosales, Pangasinan and from Nichols, Pasay City to
Lucena, Quezon. The franchise includes the right of CDCP to collect toll fees as may be fixed and/or
authorized by the TRB, for a period of 30 years from May 1, 1977. Pursuant to the said decree, a Toll
Operation Agreement was executed between the Republic of the Philippines, acting through the TRB, and
PNCC in October 1977.
On December 22, 1983, Presidential Decree No. 1894 was enacted. It amended the PNCC franchise by,
among others, including therein the Metro Manila expressway which runs from Bicutan, Parañaque to
Meycauayan, Bulacan.
PNCC assigned its usufructuary rights to its existing franchise to MNTC, which was at that time referred to
as a joint venture company to be formed by PNCC and MPTDC. The assignment of the franchise was
approved by the President of the Republic of the Philippines on May 16, 1995, in accordance with
Presidential Decree Nos. 1894 and 1113.
On February 4, 1997, MNTC was incorporated and on April 30, 1998, the STOA between the Republic of
the Philippines (acting by and through the TRB), PNCC and MNTC was executed. The President of the
Republic of the Philippines approved the STOA on June 15, 1998, in accordance with Presidential Decree
Nos. 1894 and 1113.
Under the STOA, the Republic of the Philippines confirms its recognition and acceptance of the assignment
by PNCC of its usufructuary rights, interests and privileges under the PNCC franchise in favor of MNTC.
Consequently, unless otherwise qualified by the provisions of the STOA, MNTC shall be subject to the
terms, conditions and limitations of the PNCC franchise under Presidential Decree Nos. 1894 and 1113 as
fully and completely and to the same extent as if the franchise was granted to MNTC insofar as it relates to
the Project.
MNTC‟s concession rights under the STOA shall be in effect for a period commencing on June 15, 1998
until December 31, 2030, or 30 years after the issuance of the corresponding Toll Operation Permit for the
last completed Phase, whichever is earlier, unless further extended pursuant to the provisions of the STOA.
The concession rights were subsequently extended to December 31, 2037 in lieu of the construction of
Segment 8.1 of Phase 2.
Need for government approval of principal products or services
MNTC is allowed to collect toll fees from the motorists based on the authorized toll rate formula specified in
the concession agreement. The initial toll rate charged by the company to the motorists at the start of its
commercial operations on February 10, 2005 was computed by applying the authorized toll rate formula and
the prescribed procedures in the concession agreement. Toll rates are subject to bi-annual periodic
adjustments.
Amount spent on research and development activities and its percentage to revenues during each of the
last three fiscal years
Not applicable
11
Effect of Existing or Probable Government Regulations in the Business
(1) 12% Expanded Value Added Tax (EVAT) - the implementation of the 12% EVAT on the toll fees
is expected to have a slight impact on traffic since it will make toll fees more expensive which may
slightly impact traffic into the NLEX.
(2) Anti-Overloading Law (RA 8794) - the implementation of RA 8794, Anti-Overloading Law, has
initially created numerous complaints from the trucking industry plying the expressway. This has led to
the reduction of traffic in the NLEX especially among Class 3 vehicles.
Compliance with Environmental Laws
MNTC was issued the following five Environmental Compliance Certificates by the Department of
Environment and Natural Resources (“DENR”) for the various segments of Phase 1 and Segment 8.1 of
Phase 2 of the Project: (i) Balintawak, Caloocan to Meycauayan, Bulacan; (ii) Meycauayan, Bulacan to
Burol, Bulacan; (iii) Burol, Bulacan to San Fernando, Pampanga; (iv) San Fernando, Pampanga to Sta. Ines,
Mabalacat, Pampanga; and (v) the Subic-Tipo Road.
MNTC is fully compliant with the strict requirements of the DENR.
Employees and Labor Relations
Presently, MPTC has nine (9) employees handling finance and general administrative work.
MPTDC has twenty-eight (28) employees, mainly performing internal audit and human resources functions.
MNTC employs ninety eight (98) employees as of March 31, 2011, excluding seconded personnel,
individual consultants, and agency-hired staff. It utilizes project teams in pursuing its various corporate
initiatives. Project teams are usually composed of employees representing the various functional areas of
MNTC.
TMC has approximately eight hundred four (804) regular and probationary employees and three hundred
twelve (312) project and contractual employees with approximately seven hundred twenty three (723)
employees assigned to toll operations and traffic management.
Item 2. DESCRIPTION OF PROPERTY
Operating company, MNTC, owns a head office in Balintawak, Caloocan City. Other equipment, which is
relatively insignificant, consists of transportation equipment and office equipment primarily located in the
head office. MNTC does not own the parcels of land over which the Project Roads have been built as these
are owned by the Republic of the Philippines.
As discussed in Note 17 – Long-Term Debt to the accompanying audited consolidated financial statements
of the Company found in Item 7, substantially all its existing and future assets of MNTC are mortgaged in
favor of the lenders in line with the requirements of the amended and restated Mortgage, Assignment and
Pledge Agreement, known as the Master Security Agreement (MSA).
Item 3. LEGAL PROCEEDINGS
Local Business Tax and Real Property Tax
In 2008, MNTC has received a Final Demand from the municipality of Guiguinto, Bulacan to pay the local
business tax assessments for the years 2005 to 2007 amounting to P67.4 million, inclusive of surcharges and
penalties. MNTC, together with its legal counsel protested claiming that its predecessor, PNCC has never been
subjected to local business tax and as such MNTC continued the customary practice of obtaining the business
12
permits solely from the local government unit where its principal office is located. The case is still pending
before the Regional Trial Court of Malolos, Bulacan.
On November 19, 2009, TRB informed MNTC that TRB‟s Board of Directors approved MNTC‟s request to
intervene in the local business tax case or the purposes of protecting the interests of the government and the
motoring public, avoiding an disruption in the operation of NLEX as a limited access facility and resisting
collateral attack in the validity of the STOA. TRB also advised MNTC that on November 12, 2009, the Omnibus
Motion for (i) for Intervention and (ii) to admit attached Manifestation and Motion in Intervention was filed by
the Office of the Solicitor General on behalf of TRB praying for the issuance of a Temporary Restraining Order
and a Writ of Preliminary Injunction to enjoin the municipality from closing MNTC‟s business particularly with
respect to its operations of the Burol-Tabang and Burol-Sta. Rita toll exits and any facility that is indispensable
in the operation of the tollway.
In March 2010, MNTC received a final demand letter from the municipality to pay LBT, permits, and regulatory
fees. On March 12, 2010, the Regional Trial court denied MNTC‟s application for the issuance of a temporary
restraining order and/or writ of preliminary injunction. On March 15, 2010, MNTC filed with the Court of
Appeals a petition for certoriari (with application for the issuance of a temporary restraining order and/or a writ
of preliminary injunction) to annul or set aside the orders of the RTC denying MNTC‟s application for the
issuance of a writ of preliminary injunction. The Court of Appeals, in its decision dated July 23, 2010, dismissed
the petition. On August 17, 2010, the Court of Appeals denied the motion for reconsideration.
Meanwhile, on July 22, 2010, MNTC filed another complaint with the Regional Trial court of Malolos, Bulacan
seeking to annul and set aside the illegal assessment for unpaid local business taxes in the total amount of
Php34.0 million, inclusive of surcharges and penalties, for the years 2008 and 2009 issued against MNTC by the
Municipal Treasurer of Guiguinto, Province of Bulacan in February 2010.
The cases are pending before the Regional Trial Courts.
As of February 23, 2011, MNTC is in the process of discussing the issue on the prospective allocation of the
LBT with the Bureau of Local Government Finance.
Real Property Taxes
In 2008, MNTC also received real property tax assessments covering the toll roads located in the Municipality of
Guiguinto amounting to Php2.9 million for the years 2005 to 2008. MNTC appealed before the Local Board of
Assessment Appeals (LBAA) of Bulacan and prayed for the cancellation of the assessment. The case is still
pending before the LBAA of Bulacan.
In 2004, MPTDC has received real property tax assessments covering Segment 7 located in the province of
Bataan for the period 1997 to June 2005 amounting to Php98.5 million for alleged delinquency property tax.
MPTDC appealed before the LBAA of Bataan and prayed for the cancellation of the assessment. In the said
appeal, MPTDC invoked that the property is owned by the Republic of the Philippines, hence, exempt from real
property tax. The case is still pending before the LBAA of Bataan.
The outcome of these claims cannot be presently determined. Management believes that these claims will not
have a significant impact on the Company‟s financial statements. As with regards to the real property tax,
management and its legal counsel believes that the STOA also provides MNTC with legal recourse in order to
protect its lawful interests in case there is a change in existing laws which makes the performance by MNTC of
its obligations materially more expensive.
Others
MNTC is a co-respondent (together with TRB, PNCC, other tollway operators, TMC, MPTDC (then
FPIDC) and BHC) in two Supreme Court cases, where, based on the following allegations, the petitioners‟
claims that the STOA is null and void:
the negotiation and execution of the STOA failed to undergo public bidding in accordance with
applicable laws and regulations of the Philippines;
13
the STOA granted to MNTC a 30-year franchise for the construction, maintenance and operation of the
NLE in violation of the Presidential Decrees under which the PNCC‟s franchise were granted and the
Philippine Constitution; and
the provisions of the STOA providing for the establishment and adjustment of toll rates violate the
statutory requirement for the TRB to conduct public hearings on the level of authorized toll rates.
The Supreme Court, in a decision dated October 19, 2010, among others, declared as valid and constitutional
the STOA. Petitioner Francisco filed a motion for reconsideration dated November 5, 2010 while some of
the petitioners in Marcos, et al. v. TRB et al. filed a partial motion for reconsideration dated October 8,
2010. On January 24, 2011, MNTC filed a consolidated comment to the aforementioned motions for
reconsideration.
Management believes that the petitioners‟ claims are without merit and is vigorously contesting the case. As
of February 23, 2011, the case is still pending.
The Company is also a party to other cases and claims arising from the ordinary course of business filed by
third parties which are either pending decisions by the courts or are subject to settlement agreements. The
outcome of these claims cannot be presently determined. In the opinion of management and the Company‟s
legal counsel, the eventual liability from these lawsuits or claims, if any, will not have a material adverse
effect on the Company‟s financial position and financial performance.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal
year covered by this annual report.
14
Part II -- OPERATIONAL AND FINANCIAL INFORMATION
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information
Share price performance from 2009 to 2011 is summarized below:
High Low
2011
First Quarter 9.88 7.30
2010
First Quarter 9.20 5.30
Second Quarter 9.00 7.00
Third Quarter 8.80 5.50
Fourth Quarter 10.00 7.80
2009
First Quarter 4.50 1.60
Second Quarter 10.75 2.90
Third Quarter 11.50 5.20
Fourth Quarter 9.90 7.40
Holders
As at February 28, 2011, there were 253 holders of record of 4,978,054,788 common shares of MPTC.
Listed below were the top 20 common shareholders, including their nationalities, the number of shares held,
the amount of their holdings, and the approximate percentages of their respective shareholdings to MPTC‟s
total outstanding common stocks:
Number of
Rank Name of Holder on Record Nationality Class Shares Percentage
1 Metro Pacific Investment Corporation Filipino A 4,970,570,627 99.850
2 PCD Nominee Corporation (Filipino) Filipino A 2,090,333 0.042
3 Ateneo Scholarship Foundation, Inc. Filipino A 914,667 0.018
4 G.D. Tan & Company, Inc. Filipino A 225,100 0.005
5 Venture Securities, Inc. Filipino A 171,000 0.003
6 PCD Nominee Corporation Various A 167,600 0.003
7 Ubp Securities, Inc. Filipino A 155,500 0.003
8 James Uy Inc. Filipino A 144,500 0.003
9 Jose Sangalang Filipino A 135,500 0.003
10 Benjamin Co Ca & Company, Inc. Filipino A 129,600 0.003
11 Uy-Tioco & Co., Inc. Filipino A 129,500 0.003
15
12 Vicente Goquiolay & Co., Inc. Filipino A 121,800 0.002
13 R. Coyiuto Securities, Inc. Filipino A 107,000 0.002
14 E. Santamaria & Co., Inc. Filipino A 106,500 0.002
15 Squire Securities, Inc. Filipino A 98,000 0.002
16 L. M. Garcia & Asscociates Inc. Filipino A 86,000 0.002
17 Tiong Securities Corporation Filipino A 81,000 0.002
18 Prudential Sec. Corp. Filipino A 76,000 0.002
19 Island Securities, Inc. Filipino A 74,000 0.002
20 Fortune Securities, Inc. Filipino A 74,000 0.002
TOTAL TOP 20 4,975,658,227 99.952
OTHER STOCKHOLDERS 2,396,561 0.048
TOTAL OUTSTANDING 4,978,054,788 100.000
Dividends
The Company is authorized to pay dividends on the shares in cash, in additional shares, in kind, or in a
combination of the foregoing. Dividends paid in cash are subject to approval by the Board and no
stockholder approval is required. Dividends paid in the form of additional shares are subject to approval by
the Board and holders of at least two-thirds of the outstanding capital stock of the Company. Holders of
outstanding shares on a dividend record date for such Shares will be entitled to the full dividend declared
without regard to any subsequent transfer of such Shares.
There are no restrictions that limit the ability to pay dividends on common equity.
There were no sales of unregistered securities.
Cash Dividends
The following table shows the dividends declared to common shareholders from the earnings for the
years ended December 31, 2008, 2009 and 2010:
Date Amount
Earnings Approved Record Payable Per
Share
Total
( in millions)
2008 October 16, 2008 October 31, 2008 November 7, 2008 0.21 1,054
2008 December 17, 2008 December 31, 2008 January 14, 2011 0.09 450
2009 July 31, 2009 August 14, 2009 0.09 450
2009 February 17, 2010 March 5, 2010 March 22, 2010 0.15 747
2010 August 24, 2010 September 9, 2010 September 30, 2010 0.09 445
2010 February 23, 2011 March 11, 2011 April 8, 2011 0.15 755
Scrip Dividends
Under Section 8.04.02 of the Amended Shareholders‟ Agreement with among others Leighton International
Limited (LIL), MPTC, through MPTDC, has the right to receive from LIL 50.0% of the difference of LIL‟s
16
selling price for the sale of its 16.5% interest in MNTC and US$19.4 million, provided that any payment of
LIL to MPTDC shall not exceed US$4.4 million. Such MNTC shares held by LIL were previously
purchased from MPTDC.
On November 12, 2009, LIL sold the shares to a third party and thereby paid the amount of US$ 4.4 million
(P204 million) to MPTDC which the latter recognized as additional gain from the previous sale of MNTC
shares to LIL and was included as part of the “Other income” account in the consolidated statement of
income. In view of this, the Company recognized the scrip dividends declared in 2008 payable to all
stockholders of record as of October 30, 2008 giving the stockholders the right to receive a proportionate
share in the amounts that maybe received by MPTC, through MPTDC, from LIL pursuant to the Amended
Shareholders‟ Agreement. The scrip dividends declared by MPTC amounted to US$3.9 million (P182
million), net of capital gains tax. As of December 31, 2010 and 2009, unpaid scrip dividends amounted to
P0.3 million and is included under the “Dividends payable” account.
Item 6. MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion and analysis of our financial condition and results of operations should be read in
conjunction with our consolidated financial statements and the related notes as at and for the years ended
December 31, 2010, 2009 and 2008 included elsewhere in this Annual Report. This discussion contains
forward-looking statements that reflect our current views with respect to future events and our future
financial performance. These statements involve risks and uncertainties, and our actual results may differ
materially from those anticipated in these forward-looking statements.
Selected Financial Data and Key Performance Indicators
2010 2009 2008
(in millions)
Statement of Income Data:
Revenues 5,858 5,489 5,198
Cost of services 2,584 2,623 2,642
Equity in net earnings of an associate 163 174 113
General and administrative expenses 991 1,735 518
Interest expenses and other finance costs 1,111 960 904
Other income(expenses) 169 358 (184)
Net income attributable to equity holders of MPTC 996 582 784
Net income 1,427 666 1,109
Net income margin
Balance Sheet Data:
Cash and cash equivalents and short-term investments 1,874 1,520 1,156
Total assets 19,329 18,342 18,728
Long-term debt – net 7,178 7,788 7,814
Total equity attributable to equity holders of MPTC 5,907 6,084 6,117
Other Data:
Net cash provided by operating activities 3,198 2,608 1,550
Capital expenditures 1,289 361 81
Net cash used in investing activities (1,133) 10 81
Net cash used in financing activities 1,711 2,254 1,921
Overview
Metro Pacific Tollways Corporation (MPTC) is a publicly listed infrastructure company owning 67.1% of
Manila North Tollways Corporation (MNTC) and 46% of Tollways Management Corporation (TMC). With
the North Luzon Expressway and the Subic-Clark-Tarlac Expressway in its toll road portfolio, MPTC is
currently the biggest toll road developer in the country with more than 800 lane-kilometers of toll roads
under its management.
17
The North Luzon Expressway (NLEX) is the main infrastructure backbone that connects Metro Manila to 15
million people in Central and Northern Luzon, especially its key cities of Angeles and San Fernando
Pampanga. It is the transport and travel lifeline of agri-industrial products and services to and from the
provinces of Bulacan, Pampanga and Tarlac and provides vital access to the two major Freeport zones of
Clark, which has a burgeoning international airport and Subic, which boasts of a leading domestic and
international seaport.
The Subic-Clark-Tarlac Expressway (SCTEX) is the country‟s longest expressway at 93.77 kilometers.
Commercial operations started on April 28, 2008, with the opening of the Subic-Clark Segment and portion
of Clark-Tarlac Segment. The opening of the remaining Clark-Tarlac Segment on July 25, 2008 signaled the
full operations of the SCTEX. The SCTEX seeks to transform the Central Luzon region into a world-class
logistics hub in the Asia-Pacific region through the integration of economic activities in the Subic Bay
Freeport, the Clark Freeport Zone, and the Central Techno Park in Tarlac and by linking major
infrastructures such as the Seaport in Subic and the Diosdado Macapagal International Airport in Clark.
MNTC is the concessionaire of NLEX, while TMC holds the operations and maintenance contracts both for
NLEX and SCTEX.
MPTC also holds a 57% interest in Metro Strategic Infrastructure Holdings, Inc. (MSIHI), which is a non-
controlling shareholder in Citra Metro Manila Tollways Corporation, the concessionaire of the Metro Manila
Skyway, a partly-elevated partly-at-grade tollway system from Makati City to Alabang, Muntinlupa.
Results of Operations
The table below shows the consolidated revenues, expenses, other income (expenses), income (loss) before
income tax, net income (loss) and net income (loss) attributable to equity holders of MPTC for the years
ended December 31, 2010, 2009, and 2008. All of MPTC‟s revenues are derived from our operations within
the Philippines.
For the Year Ended December 31
2010 2009 2008
(in millions)
Revenues 5,858 5,489 5,198
Cost of services 2,584 2,623 2,642
General and administrative expenses 990 1,735 518
Equity in net earnings of an associate 163 174 113
Interest expenses and other finance costs 1,111 959 904
Other income(expenses) 169 358 (184)
Income before income tax 1,505 703 1,063
Net income 1,427 666 1,109
Net income attributable to equity holders of MPTC 996 582 784
2010 Compared to 2009
On a Consolidated Basis
Revenues
The following table shows the breakdown of consolidated revenues for the years ended December 31, 2010
and 2009 by revenue source:
Change
2010 % 2009 % Amount %
(in millions)
Toll fees Php5,857 100 Php5,487 100 Php370 7
Sales of transponders and magnetic cards 1 0 2 0 (1) (70)
Total revenues Php5,858 100 Php5,489 100 Php369 7
18
Net toll revenues amounted to P5,858 million, 7% higher year-on-year. Daily average toll revenues
correspondingly increased from P15.03 million last year to P16.05 million this year, as the Company
recorded all-time highs in traffic volume in 2010. Average daily traffic along NLEX reached 159,882
vehicle entries in 2010, 6% higher than in 2009. Despite the increase in fuel prices, traffic volume improved
due to the traffic growth in Subic-Clark-Tarlac Expressway, the opening of Segment 8.1, the election-related
activities, the influx of tourists during the summer season and weekends, the continuous efforts to make
NLEX as a better and safer travel route than alternative free roads.
Sales of transponders and magnetic cards declined 70% due to the outsourcing of the supply, sales and
marketing of transponders to Easytrip Services Corporation.
Cost of Services
Cost of services diminished by 2% amounting to P2,584 million from P2,623 million in 2009. The decrease
is mainly attributable to lower provisions for heavy maintenance expenditures. The provisions are made in
accordance with IFRIC 12 (see Note 5 of the accompanying notes to Audited Financial Statements in Item
7).
The following table shows the breakdown of cost of services for the years ended December 31, 2010 and
2009:
Change
2010 % 2009 % Amount %
(in millions)
Operator‟s fee Php1,340 52 Php1,338 51 Php2 0
Amortization of service concession assets 559 22 505 19 54 11
PNCC fee 348 13 292 11 56 19
Repairs and maintenance 203 8 219 8 (16) (7)
Provision for heavy maintenance 55 2 205 8 (150) (73)
Insurance 44 2 42 2 2 3
Toll collection and medical services 21 1 21 1 0 2
TRB supervision fees - 0 - 0 0 -
Cost of inventories 1 0 1 0 (1) (47)
Others 13 0 - 0 13 -
Total cost of services Php2,584 100 Php2,623 100 (Php40) (2)
Amortization of service concession assets increased by P54 million or 11% from P505 million in 2009 to
P559 million in 2010 due to the start of operations of NLEX Segment 8.1.
PNCC fees increased by P56 million or 19% from P292 million in 2009 to P348 million in 2010 because of
the increase in toll revenues. PNCC fee is a function of gross toll revenues in NLEX.
Repairs and maintenance decreased by P16 million or 7% from P219 million in 2009 to P203 million in
2010 as most expenditures were classified under heavy maintenance.
Provision for heavy maintenance significantly declined by P150 million or 73% from P205 million in 2009
to P55 million in 2010 due to the revised heavy maintenance program resulting in lower required
provisioning for 2010.
Cost of inventories decreased by P1 million or 47% from P1.1 million in 2009 to P0.6 million in 2010 due to
the outsourcing of the supply, sales and marketing of transponders to Easytrip Services Corporation.
Other cost of services pertains to professional fees incurred for bridge condition surveys conducted by a
third party during 2010.
General and Administrative Expenses
General and administrative expenses in 2010 were lower by Php745 million, or 43% at Php990 million from
Php1,735 million in 2009 primarily because of the decrease in provision for potential losses on input VAT,
19
outside services, depreciation, office supplies, donations and contributions, and input VAT write-off partly
offset by higher salaries and employee benefits, professional fees, taxes and licenses, advertising and
marketing, representation and travel, provisions and other operating expenses. As a percentage of
consolidated revenues, consolidated general and administrative expenses decreased to 17% in 2010 from
31% in 2009.
The following table shows the breakdown of consolidated general and administrative expenses for the years
ended December 31, 2010 and 2009:
Change
2010 % 2009 % Amount %
(in millions)
Provision for potential losses on input VAT Php334 34 Php1,105 64 (Php771) (70)
Salaries and employee benefits 243 25 211 12 32 15
Professional fees 73 7 49 3 24 49
Taxes and licenses 64 6 57 3 7 12
Advertising and marketing expenses 50 5 44 3 6 14
Outside services 39 4 42 2 (3) (7)
Representation and travel 33 3 26 1 7 27
Depreciation 30 3 34 2 (4) (12)
Provisions 29 3 10 1 19 190
Management fees 21 2 19 1 2 11
Write-off of input VAT - 0 94 5 (94) (10
0)
Other expenses 74 8 44 3 30 68
Total general and administrative expenses Php990 100 Php1,735 100 (Php745) (43)
Provisions for potential losses on input VAT decreased by P771 million or 70% from P1,105 million in 2009
to P334 million in 2010 because the 2009 provisions include accumulated input VAT from capital goods and
purchases from years 2006 to 2009.
Salaries and employee benefits increased by P32 million or 15% from P211 million in 2009 to P243 million
in 2010 due to increase in number of employees and the regular annual increase in basic salaries.
Professional fees were P24 million or 49% higher from P49 million in 2009 to P73 million in 2010 mainly
because of the engagement of a third party consultant to conduct pre-feasibility studies for the Connector
Road Project.
Taxes and licenses increased by P7 million or 12% from P57 million in 2009 to P64 million in 2010
primarily due to the increase in gross revenues in 2009, which is the tax base for local business taxes.
Advertising and marketing expenses climbed by P6 million or 14% from P44 million in 2009 to P50 million
in 2010 because of intensified marketing campaigns and information dissemination activities in relation to
the 2011 toll rate adjustment.
Outside services were reduced by P3 million or 7% from P42 million in 2010 to P39 million because of
continuous cost-saving measures being implemented.
Representation and travel were P7 million or 31% higher from P27 million in 2009 to P33 million due to
increase in travel expenses in relation to benchmarking and exposure trips for planned expansion projects.
Depreciation decreased by P4 million or 12% from P34 million in 2009 to P30 million in 2010 mainly due
to the full depreciation of a number of property and equipment.
Provisions increased by P19 million or 190% from P10 million in 2009 to P29 million in 2010 because of
the increase in estimated liabilities for withholding tax assessments.
Management fees increased by P2 million or 12% from P19 million in 2009 to P21 million in 2010 due to
increase in rates of management personnel rendering management services to subsidiaries and associates.
20
Write-off of input VAT decreased by P94 million or 100% from P94 million in 2009 to P0 in 2010 because
the write-off pertains to input VAT from 2005 and prior years related to operating expenses. All succeeding
input VAT on operating expenses has an equal provision recorded under Provision for probable losses on
input VAT.
Other expenses increased by P30 million or 68% from P44 million in 2009 to P74 million in 2010 mainly
due to increase in expenses for corporate initiatives.
Equity in Net Earnings of an Associate
For 2010, equity in net earnings of TMC declined 7% from Php174 million in 2009 to Php163 million in
2010. The decrease is due to some parent company adjustments made in 2010. As a percentage of
consolidated revenues, equity in net earnings of an associate was steady at 3% both in 2010 and 2009.
Interest Expense and Other Finance Costs
Interest expense and other finance costs totaled P1,111 million in 2010, 16% lower than in 2009. The
decline is mainly due to the acceleration of unamortized debt issue costs in 2010 resulting from the
prepayment notice submitted by MNTC to its long-term debt creditors informing the prepayment of all US
dollar-denominated loans on January 14, 2011. Interest expenses on bank loans increased 7% to P885
million in 2010 from P826 million in 2009 due to the non-capitalization of borrowing costs of the Philippine
National Bank term loan in relation to the construction of NLEX Segment 8.1, which started commercial
operations in June 2010.
The following table shows the breakdown of consolidated interest expense and other finance costs for the
years ended December 31, 2010 and 2009:
Change
2010 % 2009 % Amount %
(in millions)
Interest expense on:
Bank loans Php885 80 Php826 86 Php59 7
Provision for heavy maintenance - 0 16 2 (16) (10
0)
Financial guarantee obligation 11 1 12 1 (1) (8)
Other finance costs:
Amortization of debt issue costs 206 18 90 9 116 129
Lender‟s fees 8 1 14 1 (6) (43)
Bank charges 1 0 1 0 0 0
Total interest expense and other finance
costs Php1,111 100 Php959 100 Php153 16
Other Income and Expenses
The following table shows the breakdown of consolidated other income for the years ended December 31,
2010 and 2009:
Change
2010 % 2009 % Amount %
(in millions)
Foreign exchange gain (loss) Php112 34 Php9 64 Php103 1,144
Interest income 109 25 86 12 23 27
Other income 175 11 292 5 (117) (40)
Other expense (227) 19 (29) 13 (198) 683
Total other (income) expenses Php169 100 Php358 100 (Php189) (53)
Other income decreased by 53% from P358 million in 2009 to P169 million in 2010. The decrease was due
to the combined effects of the following: (i) foreign exchange gains were higher in 2010 by P103 million or
21
1,144% due to the appreciation of the Philippine peso against the US dollar and recycling of foreign
exchange gain accumulated in equity to profit and loss resulting from the termination of cash flow hedge in
2010; (ii) interest income grew by P23 million or 27% due to increased excess cash invested in short-term
time deposits and available for sale securities; (iii) other income decreased by P117 million or 40%
primarily due to the one-time gain on sale of MNTC shares held by Leighton International, Ltd. to a third
party partly offset by income from lease of utility facilities, and (iv) other expenses rose by P198 million or
683% largely due to the recycling of mark-to-market loss accumulated in equity to profit and loss resulting
from the termination of hedging agreements related to the US dollar-denominated loans.
Provisions for Income Tax
Provisions for income tax increased by P40 million or 106% from P38 million in 2009 to P78 million in
2010 mainly due to the increase in regular corporate income tax and deferred tax liabilities resulting from
unrealized foreign exchange gains and differences in amortization method of service concession assets.
Net Income
Consolidated net income in 2010 amounted to P1,427 million, P761 million or 114% higher than P666
million in 2009, mainly due to higher toll revenues and lower provisions for probable losses on input VAT.
Net income attributable to equity holders of MPTC likewise increased from P582 million in 2009 to P996
million in 2010.
2009 Compared to 2008
On a Consolidated Basis
The following table shows the breakdown of consolidated revenues for the years ended December 31, 2009
and 2008 by revenue source:
Change
2009 % 2008 % Amount %
(in millions)
Toll fees Php5,487 100 Php5,195 100 Php293 6
Sales of transponders and magnetic cards 2 0 3 0 (1) (34)
Total revenues Php5,489 100 Php5,198 100 Php291 6
Total revenues were higher by 6% year-on-year at P5,489 million compared to P5,198 million in 2008.
Average traffic volume, as measure by vehicle entries, was higher by 6% in 2009 compared with 2008.
Numerous factors contributed to the growth in traffic volume during the year. Against last year, average
unleaded fuel prices dropped 19% while diesel prices were reduced by 30%. The opening of the Subic-
Clark-Tarlac Expressway (SCTEX), extended journeys within NLEX of Subic- and Clark-bound vehicles.
Ongoing bridge construction and rehabilitation works along EDSA-Balintawak and Maharlika Highways
diverted some of the heavy vehicles to NLEX. Local tourism is continuously promoted through various
initiatives and a high quality of customer service to NLEX motorists is consistently delivered.
Sales of transponders and magnetic cards declined 34% due to the outsourcing of the supply, sales and
marketing of transponders to Easytrip Services Corporation effective April 2008.
Cost of Services
Cost of services went down by 1% to P2,623 million in 2009 from P2,642 million in 2008. The slight
decrease was due to the lower amortization of concession assets from the extension of MNTC‟s concession
to 2037 from 2030.
22
The following table shows the breakdown of cost of services for the years ended December 31, 2009 and
2008: Change
2009 % 2008 % Amount %
(in millions)
Operator‟s fee Php1,338 51 Php1,376 52 (Php38) (3)
Amortization of service concession assets 505 19 554 21 (49) (9)
PNCC fee 292 11 276 10 16 6
Repairs and maintenance 219 8 115 4 104 90
Provision for heavy maintenance 205 8 252 10 (47) (19)
Insurance 42 2 41 2 1 2
Toll collection and medical services 21 1 22 1 (1) (5)
TRB supervision fees - 0 2 0 (2) (100)
Cost of inventories 1 0 4 0 (3) (75)
Others - 0 - - - n/a
Total cost of services Php2,623 100 Php2,642 100 (Php19) (1)
Amortization of service concession assets decreased by P49 million or 9% from P554 million in 2008 to
P505 million in 2009 due to the extension of the concession period by seven more years effective October
2008.
PNCC fees increased by P16 million or 6% from P276 million in 2008 to P292 million in 2009 because of
the increase in toll revenues. PNCC fee is a function of gross toll revenues in NLEX.
Repairs and maintenance increased by P104 million or 90% from P115 million in 2008 to P219 million in
2009 due to increased requirements for repairs resulting from typhoon damages. Processing of insurance
claims are in process.
Provision for heavy maintenance declined by P47 million or 19% from P251 million in 2008 to P205 million
in 2009 due to the accretion of the discounted projected expenditures for heavy maintenance.
Cost of inventories decreased by P3 million or 75% from P4 million in 2008 to P1 million in 2009 due to the
outsourcing of the supply, sales and marketing of transponders to Easytrip Services Corporation starting
April 2008.
General and Administrative Expenses
The following table shows the breakdown of consolidated general and administrative expenses for the years
ended December 31, 2009 and 2008: Change
2009 % 2008 % Amount %
(in millions)
Provision for potential losses on input VAT Php1,105 64 Php- - (Php1,105) 100
Salaries and employee benefits 211 12 221 43 (10) (5)
Professional fees 49 3 78 15 (29) (37)
Taxes and licenses 57 3 27 5 30 111
Advertising and marketing expenses 44 3 38 7 6 16
Outside services 42 2 34 7 8 24
Representation and travel 26 1 27 5 (1) (4)
Depreciation 34 2 27 5 7 26
Provisions 10 1 - - 10 100
Management fees 19 1 6 1 13 217
Write-off of input VAT 94 5 - - 94 100
Other expenses 44 3 60 12 (16) (27)
Total general and administrative expenses Php1,735 100 Php518 100 (Php1,217) (235)
General and administrative expenses in 2009 were higher by P1,217 million, or 235% at P1,735 million
from P518 million in 2008 primarily because of the provision for potential losses on input VAT and increase
in outside services, taxes and licenses, advertising and marketing expenses, depreciation, provisions, and
management fees, partly offset by lower salaries and employee benefits, professional fees, representation
and travel, and other operating expenses. As a percentage of consolidated revenues, consolidated general and
administrative expenses increased to 31% in 2009 from 10% in 2008.
23
The provision for probable losses on input VAT is in light of the Bureau of Internal Revenue‟s pending
order to impose VAT on toll revenues. MNTC made a provision equal to its accumulated input VAT on its
purchases of goods and services. Excluding this one-time non-cash charge, the increase in general and
administrative expenses was at a manageable 3%.
Provisions for potential losses on input VAT increased by P1,105 million from P0 in 2008 to P1,105 million
in 2009 because the provisions equal to accumulated input VAT from capital goods and purchases from
2005 to 2009 were only made in 2009.
Salaries and employee benefits decreased by P10 million or 5% from P221 million in 2008 to P211 million
in 2009 due to the decrease in the total annual performance bonuses and reorganization in key management
positions.
Professional fees were P29 million or 37% lower from P78 million in 2008 to P49 million in 2009 mainly
because of less requirements to engage third party consultants.
Taxes and licenses increased by P30 million or 111% from P27 million in 2008 to P57 million in 2009
primarily because the classification of MNTC as a „new business‟ with its change its principal place of
business from Pasig City to Caloocan City, resulting in a lower local business tax rate.
Advertising and marketing expenses climbed by P6 million or 16% from P38 million in 2008 to P44 million
in 2009 because of intensified marketing and public relations campaigns throughout the year.
Outside services increased by P8 million or 24% from P34 million in 2008 to P42 million in 2009 because
of the increase in required man-hours of rendered services.
Depreciation increased by P7 million or 26% from P27 million in 2008 to P34 million in 2009 mainly due to
the acquisitions of property and equipment during 2009.
Provisions increased by P10 million from P0 in 2008 to P10 million in 2009 because of estimated liabilities
for certain fees recorded during 2008 were closed out within that year.
Management fees increased by P13 million or 217% from P6 million in 2008 to P19 million in 2009due to
increase in management services rendered by Smart Communications, Inc, to MPTC in 2009.
Write-off of input VAT increased by P94 million from P0 in 2008 to P94 million in 2009 because the write-
off pertains to input VAT from 2005 and prior years related to operating expenses was a one-time charge
made in 2009.
Other expenses decreased by P16 million or 27% from P60 million in 2008 to P44 million in 2009 mainly
due to decrease in training-related expenses.
Equity in Net Earnings of an Associate
Equity in net earnings of TMC climbed 54% from P113 million in 2008 to P174 million in 2009. The
increase is mainly attributable to the incremental income derived by TMC from the interim O&M agreement
with BCDA for SCTEX and NLEX while efficiently managing operating costs. As a percentage of
consolidated revenues, equity in net earnings of an associate slightly increased from 2% in 2009 to 3% in
2010.
Interest Expense and Other Finance Costs
Interest expense and other finance costs totaled P959 million in 2009, 6% higher than in 2008. The increase
is mainly due to the following:
(i) Interest expense on bank loans increased by P19 million or 2% from P807 million in 2008 to P826
million in 2009 due to higher nominal rates resulting from the hedging transactions entered into by
MNTC. MNTC hedged its US Dollar-denominated debts with the change in the toll rate formula to
24
take out adjustments related to foreign currency fluctuations. The hedging transactions substantially
eliminated the foreign exchange risk of the Company;
(ii) Interest expense on provision for heavy maintenance increased to P16 million in 2009 from P0 in
2008 because of the factor of accretion in the discounted values of projected heavy maintenance
expenditures beginning 2008.
(iii) Amortization of debt issue costs increased by P18 million or 24% from P72 million in 2008 to P90
million in 2009 because of the accelerated amortization of debt issue costs related to the ADB
Direct Loan, which was converted into Philippine pesos from US dollar in 2009.
The following table shows the breakdown of consolidated interest expense and other finance costs for the
years ended December 31, 2009 and 2008:
Change
2009 % 2008 % Amount %
(in millions)
Interest expense on:
Bank loans Php826 86 Php807 89 Php19 2
Provision for heavy maintenance 16 2 - 0 16 100
Financial guarantee obligation 12 1 11 1 1 9
Other finance costs:
Amortization of debt issue costs 90 9 72 8 18 24
Lender‟s fees 14 2 13 2 1 8
Bank charges 1 0 1 0 (0) (0)
Total interest expense and other finance
costs Php960 100 Php904 100 Php55 6
Other Income and Expenses
Other income/expense increased by P542 million or 295% from a net expense of P183 million in 2008 to a
net income of P358 million in 2009. The increase was due to the combined effects of the following: (i)
foreign losses of P399 million in 2008 against foreign exchange gains of P9 million in 2009 due to the
hedging of MNTC‟s exposure to foreign currency exchange fluctuations on its dollar-denominated loans; (ii)
other income increased by P187 million or 178% primarily due to the one-time gain on sale of MNTC shares
held by Leighton International, Ltd. to a third party partly offset by income from lease of utility facilities.
The following table shows the breakdown of consolidated other income for the years ended December 31,
2009 and 2008:
Change
2009 % 2008 % Amount %
(in millions)
Foreign exchange gain (loss) Php9 64 (Php399) 218 Php408 102
Interest income 86 12 110 (60) (24) 22
Other income 292 5 105 (58) 187 178
Other expense (29) 13 - - (29) 100
Total other (income) expenses Php358 100 (Php184) 100 Php542 295
Provisions for Income Tax
Provisions for income tax increased by P83 million or 185% from an income tax benefit of P45 million in
2008 to an income tax expense of P38 million in 2009 mainly due to the increase in regular corporate
income tax and the capital gains tax paid on the sale of MNTC shares held by Leighton International, Ltd. to
a third party.
25
Net Income
Consolidated net income in 2009 amounted to P666 million, P443 million or 40% lower than P1,109 million
in 2008, mainly due to the provisions for probable losses on input VAT amounting to P1,105 million. Net
income attributable to equity holders of MPTC likewise declined from P784 million in 2008 to P582 million
in 2009.
Financial Position
December 31, 2010 Compared to December 31, 2009
On a Consolidated Basis
Cash and cash equivalents increased by P354 million or 23% from P1,520 million in 2009 to P1,874 million
in 2010 because of higher cash received as toll revenues in 2010.
Receivables were P27 million or 91% higher from P30 million in 2009 to P57 million in 2010 due to
increased receivables from utility facility lessees and corporate accounts.
Advances to contractors and consultants declined by P247 million or 97% from P256 million in 2009 to P8
million in 2010 mainly due to the completion of the civil works contract with Leighton Contractors Asia,
Ltd. for the construction of NLEX Segment 8.1.
Investments in an associate increased by P16 million or 13% from P125 million in 2009 to P141 million in
2010 because cash dividends declared by TMC are lower than income earned both during 2010 and 2009.
Service concession assets grew by P694 million or 5% from P15,124 million in 2009 to P15,818 million in
2010 mainly due to the capitalized construction costs of NLEX Segment 8.1.
Derivative assets (noncurrent) decreased by P39 million or 100% from P39 million in 2009 to P0 in 2010
because floating interest rates remained lower than the fixed interest rates in the hedging agreements.
Moreover, exchange rates throughout 2010 remained lower than those fixed in the hedging agreements.
These differences caused the fair values of derivative transactions to have negative balances.
Available-for-sale financial assets (noncurrent) increased to P513 million in 2010 from P0 in 2009 because
of the reclassification of the investments in Retail Treasury Bonds from held-to-maturity to available-for-
sale after a sale and purchase transaction and the investment in shares of CMMTC after the acquisition of
shares in MSIHI in 2010.
Investment in bonds decreased to P0 in 2010 from P401 million in 2009 due to the reclassification of a
portion of the investments in Retail Treasury Bonds to cash and cash equivalents and the remaining portion
to available-for-sale financial assets.
Other noncurrent assets increased by P18 million or 92% because of expenditures made in relation to the
SCTEX concession.
Unearned toll revenues were P10 million or 47% higher from P21 million in 2009 to P31 million in 2010
due to the increase in active transponder accounts resulting in higher floats in unused account balances.
Dividends payable increased by P38 million or 26% from P144 million in 2009 to P182 million because of
higher cash dividends declared but unpaid by MNTC.
Income tax payable is P7 million or 67% higher from P11 million in 2009 to P18 million in 2010 due to
higher regular corporate income tax in 2010.
Provisions (current portion) increased by P79 million or 201% from P39 million in 2009 to P118 million in
2010 due to the reclassification of a portion of the provision for heavy maintenance to current resulting from
the expected fulfillment of the obligations in accordance with the heavy maintenance program during the
succeeding year.
26
Current portion of long-term debt increased by P1,597 million or 276% from P580 million in 2009 to P2,176
million in 2010 because of the prepayment notice submitted by MNTC to its creditors informing its planned
prepayment of US dollar-denominated loans on January 14, 2011, rendering the entire amount of such loans
as current.
Derivative liabilities (current) increased to P212 million in 2010 from P0 in 2009 because floating interest
rates remained lower than the fixed interest rates in the hedging agreements. Moreover, exchange rates
throughout 2010 remained lower than those fixed in the hedging agreements. These differences caused the
fair values of derivative transactions to have negative balances. All derivatives were classified as current
after the submission of the prepayment notice for the underlying financial instruments. The derivatives shall
be terminated alongside the prepayment of the US dollar-denominated loans to be fully paid on January
2011.
Long-term debt (net of current portion) was reduced by P610 million or 8% because of the reclassification of
the US dollar-denominated loans as current after its planned prepayment on January 2011 offset by the
increase in drawdowns from the term loan for the construction of NLEX Segment 8.1.
Derivative liabilities (noncurrent) decreased to P0 in 2010 from P44 million in 2009 because of the
reclassification of all derivatives to current due to the prepayment of the US dollar-denominated loans, the
financial instruments that were hedged, on January 2011.
Accrued retirement costs were P9 million or 91% lower from P10 million in 2009 to P1 million in 2010
because of the increase in contributions made in the retirement fund during 2010.
Provisions (noncurrent portion) decreased by P107 million or 26% from P416 million in 2009 to P308
million in 2010 mainly due to the reclassification of a portion of the provision for heavy maintenance to
current resulting from the expected fulfillment of the obligations in accordance with the heavy maintenance
program during the succeeding year.
Deferred tax liabilities increased by P37 million or 13% from P285 million in 2009 to P322 million in 2010
mainly due to higher deferred tax liabilities in relation to the difference in amortization method of service
concession assets.
Retained earnings decreased by P195 million or 11% from P1,800 million in 2009 to P1,605 million in 2010
due to higher cash dividends declared against net income earned during 2010.
Other reserves increased to P2 million in 2010 from P0 in 2009 due to the recorded stock options expense in
relation to the share-based payments to management committee members of MPTC and its subsidiaries.
Key Performance Indicators
The following are the key performance indicators for MPTC:
For the Years Ended
December 31
2010 2009
Current ratio 0.78 1.74
Debt-to-equity (DE) ratio 1.39 1.20
Net profit margin 0.24 0.12
Return on assets 0.31 0.30
Return on stockholders‟ equity 0.17 0.08
Current ratio decreased from 1.74 in 2009 to 0.78 in 2010 mainly due to the reclassification of all
outstanding US dollar-denominated loans to current in 2010. These, however, would be refinanced
through another loan.
27
MPTC became more leveraged on debt in 2010 with a debt-to-equity ratio of 1.39 in 2010 compared to
1.20 in 2009. This is due to the increase in cash dividends declared to stockholders in 2010. Despite the
increase in leverage in debt, all debt covenants are still complied with in 2010.
Net profit margin doubled to 0.24 in 2010 from 0.12 in 2009 due to the decrease in provisions for
probable losses on input VAT and the increase in toll revenues while controlling costs and expenses.
Return on assets slightly increased from 0.30 in 2009 to 0.31 in 2010 because revenue growth is larger
than asset growth.
Return on stockholders‟ equity improved from 0.08 in 2009 to 0.17 in 2010 due to the increase in net
income coupled with higher cash dividends declared in 2010.
2009 Compared to 2008
On a Consolidated Basis
Cash and cash equivalents were higher by P364 million or 31% from P1,156 million end-2008 to P1,520
million end-2009 as MNTC contributed higher revenues in 2009 compared to 2008 while paying out lower
cash dividends to its stockholders. MPTC also declared lower cash dividends for the comparable periods.
Receivables increased by P16 million from P14 million in 2008 to P30 million in 2009 due to increase in
various trade receivables from customers and toll service facilities.
Inventories are lower by P14 million or 27% from P51 million in 2008 to P37 million in 2009 due to the
Company‟s efforts to minimize overstocking of spare parts.
Advances to contractors and consultants increased by P246 million or 2,425% from P10 million in 2008 to
P256 million in 2009 because of the advances made to the civil works contractor for the construction of
NLEX Segment 8.1 that started in 2009.
Other current assets were higher by P21 million or 39% from P52 million in 2008 to P73 million in 2009
because of investments in treasury bills purchased in 2009.
Investment in and advances to an associate decreased by P224 million or 64% from P349 million in 2008 to
P125 million in 2009 because of the full payment of advances made by an associate.
Property and equipment increased by P5 million or 5% from P108 million in 2008 to P113 million in 2009
mainly because of additions in transportation equipment.
Derivative assets were lower by P14 million or 26% from P53 million in 2008 to P39 million in 2009
because floating interest rates remained lower than the fixed interest rates in the hedging agreements.
Moreover, exchange rates throughout 2009 remained lower than those fixed in the hedging agreements.
These differences caused the fair values of derivative transactions to decrease.
Investment in bonds increased by P300 million or 298% from P101 million in 2008 to P401 million in 2009
because of additional investments in Retail Treasury Bonds made in 2009.
Input value added tax (VAT) decreased by 100% from P1,497 million in 2008 to P0 in 2009 as the Company
recognize a provision for potential write-off of input VAT from purchase of goods and services. As
previously discussed, the Company written off the accumulated Input VAT from prior years.
Other noncurrent assets increased by P3 million or 20% from P16 million in 2008 to P19 million in
2009because of the deferred charges on the BCDA project as a result of the bidding for the management and
operation and maintenance of SCTEX.
Accounts payable and other current liabilities were higher by P67 million or 31% from P219 million in 2008
to P286 million in 2009 due to the increase in accrued liabilities in 2009.
28
Due to related parties increased by P24 million or 8% from P304 million in 2008 to P328 million in 2009
because of the increase in amounts due from TMC resulting from additional services rendered by TMCfor
various repair works and landscape services in accordance with the O&M Agreement.
Unearned toll revenues increased by P2 million or 9% from P19 million in 2008 to P21 million in 2009.
This is due to the increase in the number of prepaid electronic tags during 2009 compared to the previous
year. Unearned toll revenues pertain to unused balances of prepaid loads and reloads of EC Tag holders.
Dividends payable decreased by P306 million or 68% from P450 million in 2008 to P144 million in 2009
because of the payment of the 2008 balance during 2009.
Income tax payable were higher by P10 million or 898% from P1 million in 2008 to P11 million in 2009
because of the increase in regular corporate income tax in 2009.
Provisions (current portion) were reduced by P6 million or 13% from P45 million in 2008 to P39 million in
2009 due to increased payments made during 2009.
Derivative liabilities were higher by P14 million or 49% from P30 million in 2008 to P44 million in 2009
because floating interest rates remained lower than the fixed interest rates in the hedging agreements.
Moreover, exchange rates throughout 2009 remained lower than those fixed in the hedging agreements.
These differences caused the fair values of derivative transactions to decrease.
Accrued retirement benefits are lower by P5 million or 34% from P14 million in 2008 to P9 million in 2009
because of higher contributions against provisions made during 2009.
Provisions (noncurrent portion) increased by P245 million or 144% from P170 million in 2008 to P416
million in 2009 because no cash outlay was made for heavy maintenance during 2009.
Other comprehensive losses decreased by P17 million from P24 million in 2008 to P7 million in 2009
because of the after-tax gains on cash flow hedges in 2009 against after-tax losses on cash flow hedges
recorded in 2008.
Key Performance Indicators
The following are the key performance indicators for MPTC:
For the Years Ended
December 31
2009 2008
Current ratio 1.74 1.14
Debt-to-equity (DE) ratio 1.20 1.14
Net profit margin 0.12 0.21
Return on assets 0.30 0.27
Return on stockholders‟ equity 0.08 0.12
Current ratio increased from 1.14 in 2008 to 1.74 in 2009 mainly due to the increase in cash and the
decrease in current liabilities. Cash went up to P1,520 million in 2009 from P1,152 million in 2008 as
the Company declared and paid lower cash dividends in 2009. Current liabilities also decreased to
P1,408 million in 2009 from P1,614 million in 2008.
Debt-to-equity ratio deteriorated from last year‟s 1.14 to 1.20 this year due to the increase in liabilities
and decrease in stockholders equity. The reduction in loan and interest payables was offset by the
dividends payable recognized last year. On the other hand, stockholders‟ equity was lower this year.
Profit margin also declined to 0.12 in 2009 from 0.21 in 2008 as net income decreased by P443 million
or 40% brought about by the one-time provision for potential write-off of Input VAT.
29
Return on assets decreased from 0.27 last year to 0.30 this year. Total assets decreased by P386 million
due to the write-off of input VAT in 2009.
Return on stockholders‟ equity declined from 0.12 in 2008 to 0.08 in 2009. The decrease is attributable
to lower net income.
The Company‟s audited consolidated financial statements as of December 31, 2010 and 2009 and for the
years ended December 31, 2010, 2009 and 2008 are provided for in the accompanying financial statements
in Item 7.
Formula
Current Ratio
indicator of company’s ability to pay short-term
obligations
__Current Assets__
Current Liabilities
Debt-to-Equity Ratio shows how much capital was infused by the stockholders
for every amount of debt that creditors have put in
___Total Liabilities___
Stockholders‟ Equity
Profit Margin
indicator of company’s profitability
_Net Income_
Revenues
Return on Assets
measures how the company uses its total assets to
generate profits
____Net Income____
Average Total Assets
Return on Stockholders’ Equity
reflects how much the firm has earned on the funds
invested by the shareholders
_______Net Income_______
Average Stockholders‟ Equity
Plans and Prospects
The Company shall continue its thrust to be the leading player in the tollways industry. With infrastructure
as an imperative component to continuous economic growth, MPTC is situated in a business milieu that is
both encouraging and competitive. The Company shall strive to provide high quality of service to motorists
plying NLEX, with Segment 8.1 opened in June 2010, and SCTEX, through its subsidiaries, Manila North
Tollways Corporation and Tollways Management Corporation. Continuous efforts shall also be directed to
achieve group-wide operating efficiency through cost-beneficial use of available technologies and system
improvements and optimization of the group‟s organization structure that would effectively support business
growth. Aside from adding more toll service facilities, the Company shall also introduce new concepts to
leverage on the NLEX brand and augment non-toll revenues. Examples include, but not limited to,
advertising, sale of naming rights to landmark structures such as interchanges and toll plazas, and leasing of
assets such as the fiber optic network. Expansion projects would be aggressively pursued in 2010, with the
aim of commencing construction of Segment 9 and closing the financing plan for Segments 9 & 10 and the
NLEX-SLEX Connector Road. Segments 9 & 10, which is part of the existing NLEX concession, spans 8.5
kilometers connecting the existing NLEX westward and is expected to cut travel time to the port area. The
NLEX-Skyway-SLEX Connector Road is a 13.5-kilometer elevated toll road which will connect the north-
south corridor and cut travel time to only 15 minutes. MPTDC was granted the “original proponent” status
for the said project following the submission of an unsolicited proposal to the Department of Public Works
and Highways. Furthermore, the Company, through its subsidiary, MNTC, was recently awarded by the
Bases Conversion and Development Authority (BCDA) the right to enter into a concession agreement for
the management, operations and maintenance of SCTEX.
A more significant stake in Citra Metro Manila Tollways Corporation (CMMTC) is being planned to allow
equity accounting of share in net income of the Metro Manila Skyway. The Company is also keeping its eye
on the possible sale of the stake of government-owned Philippine National Construction Corporation
(PNCC) in the South Luzon Expressway.
30
Liquidity and Capital Resources
The following table shows our consolidated cash flows for the years ended December 31, 2010, 2009 and
2008 as well as our consolidated capitalization and other selected financial data as at December 31, 2010
and 2009:
2010 2009 2008
(in millions)
Cash Flows
Net cash provided by operating activities Php3,198 Php2,608 Php1,550
Net cash provided by (used in) investing activities (1,132) 11 81
Capital expenditures 1,289 361 81
Net cash used in financing activities 1,711 2,254 1,921
Net increase (decrease) in cash and cash equivalents 354 364 (269)
2010 2009
(in millions)
Capitalization
Interest bearing financial liabilities:
Long-term financial liabilities:
Long-term debt Php7,178 Php7,787
Financial guarantee obligation 66 66
Derivative liabilities - 44
Provision for heavy maintenance 308 416
7,552 8,313
Current portion of interest-bearing financial liabilities:
Long-term debt maturing within one year 2,176 580
Derivative liabilities 212 -
Provision for heavy maintenance 88 -
2,476 580
Total interest-bearing financial liabilities 10,028 8,893
Total equity 8,101 8,325
Php18,129 Php17,218
Other Selected Financial Data
Total assets Php19,329 Php18,342
Service concession assets – net 15,818 15,124
Cash and cash equivalents 1,874 1,520
Short-term investments 856 1,250
As at December 31, 2010, consolidated cash and cash equivalents and short-term investments totaled P1,874
million. Principal sources of consolidated cash and cash equivalents in 2010 were cash flows from operating
activities amounting to P3,198 million, dividends received from an associate amounting to P147 million and
drawings mainly from MNTC‟s debt facilities, with net proceeds amounting to P1,523 million. These funds
were used principally for: (1) dividend payments of P1,697 million; (2) capital outlays of P1,289 million; (3)
total debt principal and interest payments of P630 million and P906 million, respectively; and (4) payments
for investments in subsidiaries and associates of P79 million.
As at December 31, 2009, consolidated cash and cash equivalents and short-term investments totaled P1,520
million. Principal sources of consolidated cash and cash equivalents in 2009 and 2008 were: (1) cash flows
from operations amounting to P2,608 million in 2009 and P1,550 million in 2008; (2) drawings from long-
term credit facilities totaling P577 million in 2009; (3) gains from sale of investment in MNTC shares by
Leighton Asia, Ltd. to a third party amounting to P204 million in 2009, and (4) dividends received from an
associate amounting to P140 million in 2009 and P138 million in 2008. In 2009, these funds were used
principally for: (1) dividend payments of P1,346 million; (2) capital outlays of P361 million; (3) payments
of long-term debt totaling P639 million; and (4) interest payments of P840 million; and in 2008, the funds
were used principally for: (1) dividend payments amounting to P545 million; (2) payments of long-term debt
totaling P558 million; (3) capital outlays of P81 million; and (4) interest payments of P818 million.
31
Operating Activities
Consolidated net cash flows from operating activities in 2010 increased by P590 million, or 23%, to P2,608
million from P3,198 million in 2009 primarily due to increased toll revenue collection brought about by the
growth in traffic and decrease in working capital requirements. Net cash flows from operating activities in
2009 increased by P1,058 million, or 68%, from P1,550 million in 2008, also due to the increase in toll
revenue collections driven by traffic volume growth despite the downward toll rate adjustment in July 2008.
Investing Activities
Consolidated net cash used in investing activities amounted to P1,132 million in 2010, a decrease of P1,143
million, or 104%, as compared with P11 million in 2009. The shift from a net cash inflow to a net cash
outflow was primarily due to the higher capital expenditures for the construction of NLEX Segment 8.1. Net
cash provided by investing activities amounted to P11 million in 2009, a decrease of P70 million, or 85%,
from P81 million in 2008. The decrease primarily resulted from the increase in capital expenditures with the
start of construction of NLEX Segment 8.1 on April 2009, full payment of advances made to an associate,
and cash proceeds from sale of MNTC shares held by Leighton Asia Ltd. to a third party.
Our consolidated capital expenditures in 2010 totaled P1,289 million, an increase of P928 million, or 257%,
as compared with P361 million in 2009, which is P280 million higher than the capital expenditures during
2008 at P81 million. The increases in both 2008 and 2009 are attributable to the construction costs incurred
by MNTC for NLEX Segment 8.1 during both years.
MPTC also made an acquisition of shares in Metro Strategic Infrastructure Holdings, Inc. (MSIHI). On July
2010, MPTC entered into a Share Purchase Agreement for the acquisition of 148,000 shares of MSIHI from
a third party, representing a 20% interest, for P51 million. On August 2010, an amendment to the agreement
was made reflecting the allocation of the purchase price as follows: (1) P14.8 million as consideration for
the MSIHI shares, and (2) P36.2 million as consideration for the assignment to MPTC of a third party‟s total
deposit for future stock subscription in MSIHI.
Additional 80,000 shares were acquired on December 2010 from another third party at a purchase price of
P80 million or P100 a share and deposit for future stock subscription amounting to P19.6 million at a
purchase price of equivalent amount. As a result, MPTC holds a 57% interest in MSIHI and a 1.54% indirect
equity interest in Citra Metro Manila Tollways Corporation, of which MSIHI is a shareholder. CMMTC
holds the concession for the South Metro Manila Skyway.
Financing Activities
On a consolidated basis, net cash used in financing activities amounted to P1,711 million in 2010, a decrease
of P543 million, or 24%, as compared with P2,254 million in 2009. The decrease in net cash used in
financing activities in 2010 resulted largely from higher proceeds from loans for the construction of
Segment 8.1offset in part by higher dividend and interest payments. In 2009, net cash used in financing
activities increased byP333 million or 17% from P1,921 million in 2008, due to higher dividend payments
partially offset by higher loan proceeds for the construction of Segment 8.1.
Debt Financing
Consolidated long-term debt increased by P900 million, or 10%, to P9,494 million in 2010, largely due to
drawings from the term loan facility for the construction of Segment 8.1, partially offset by debt
amortizations and prepayments and the appreciation of the Philippine peso relative to the U.S. dollar to
P43.89 as at December 31, 2010 from P46.36 as at December 31, 2009 resulting in lower peso equivalents
of our U.S. dollar-denominated debts.
Consolidated long-term debt decreased by P115 million, or 1%, to P8,594 million in 2009, primarily due to
debt amortizations partially offset by drawings from the term loan facility for the construction of Segment
8.1 and the appreciation of the Philippine peso relative to the U.S. dollar to P46.36 as at December 31, 2010
from P47.49 as at December 31, 2009.
32
Payments in respect of principal and interest of our total debt amounted to P630 million and P906 million,
respectively, in 2010 and P639 million and P840 million, respectively, in 2009.
On March 16, 2009, MNTC entered into a seven-year term loan agreement for a facility amount of P2,100
million with Philippine National Bank (PNB) to finance the project cost of NLEX Segment 8.1. The PNB
Loan qualified as senior debt which entitles the lender to share in the same security package as NLEX Phase
I lenders. On November 22, 2010, the interest rate of the PNB Loan was amended from fixed to floating rate
based on a six (6)-month PDSTF plus a spread of 0.50%. As at December 31, 2010 and 2009, loan
drawdowns on the facility amounted to P2,100 million and P577 million, respectively.
On April 27, 2009, MNTC entered into a credit agreement with Security Bank for a standby letter of credit
(SBLC) facility of up to P100 million for a period of 24 months to secure MNTC‟s Segment 8.1
construction obligation in favor of TRB. The letter of credit for an amount of P80.3 million was issued
effective April 27, 2009. The substantial completion of NLEX Segment 8.1triggered the reduction of the
face value of the SBLC to P3.75 million as of December 31, 2010. There were no availments on the letter of
credit as at December 31, 2010 and 2009.
On December 7, 2010, MNTC issued an irrevocable prepayment notice indicating the firm intention to
prepay in full all outstanding amounts under the U.S. Dollar loan facilities and ADB Direct loan on January
14, 2011. The costs and fees incurred for the prepayment of the U.S. Dollar loan facilities and ADB Direct
loan amounting to
P103.9 million was included as part of the amortized cost of the loans.
On December 21, 2010, MNTC entered into a Notes Facility Agreement with local financing institutions for
a P2,700 million short-term unsecured and subordinated notes facility. Proceeds of the notes which were
fully drawn on January 11, 2011 were used for the prepayment of the US dollar loans and other corporate
purposes.
For further details on our long-term debt, see Note 17 – Long-Term Debt to the accompanying consolidated
financial statements in Item 7.
Debt Covenants
Consolidated debt instruments contain restrictive covenants, including covenants that require us to comply
with specified financial ratios and other financial tests, at relevant measurement dates, principally at semi-
annual interest payment dates. MPTC complied with all of maintenance financial ratios as required under
our loan covenants and other debt instruments.
Financing Requirements
Available cash, including cash flow from operations, will provide sufficient liquidity to fund projected
operating, investment, capital expenditures and debt service requirements for the next 12 months.
Consolidated cash dividend payments paid to MPTC shareholders in 2010, 2009, and 2008 amounted to
P1,192 million, P1,016 million and P2 million, respectively.
On February 17 and August 24, 2010, MPTC declared a regular cash dividend of P0.15 per share or a total
of P747 million and P0.089 or a total amount of P445 million to all stockholders of record as of March 5 and
September 9, 2010, respectively. As at December 31, 2010, the cash dividends have been fully paid.
On July 31, 2009, MPTC declared cash dividends of P0.09 per share or a total amount of P450 million to all
stockholders of record as of August 14, 2009. As at December 31, 2009, the cash dividends have been fully
paid.
On October 16 and December 17, 2008, MPTC declared cash dividends of P0.21 per share or a total amount
of P1,054 million and P0.09 per share or a total amount of P450 million to all stockholders of record as of
October 30 and December 17, 2008, respectively. As of December 31, 2008, the Company has unpaid
dividends amounting to P450 million. During the year ended December 31, 2009, the Company settled its
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dividends payable through cash payment of P385 million and application of its P65 million cash advances to
MPIC.
See Item 5 – Market for Registrant’s Common Equity and Related Stockholder Matters – Dividends and
Note 19 – Equity to the accompanying consolidated financial statements in Item 7 for a detailed discussion
of our debt covenants.
Off-Statement of Financial Position Arrangements
There are no off-statement of financial position arrangements that have or are reasonably likely to have any
current or future effect on our financial position, results of operations, cash flows, changes in stockholders‟
equity, liquidity, capital expenditures or capital resources that are material to investors.
Equity Financing
The primary objective of the Company‟s capital management is to ensure that it maintains healthy capital
ratios in order to support its business and maximize shareholder value while complying with the financial
covenants required by the lenders. The Company also ensures that its debt to equity ratio is in line with the
requirements of the Bangko Sentral ng Pilipinas (BSP) and the Board of Investments (BOI).
In 2010, the Company launched its capital restructuring plan which aims to maximize the Company‟s
flexibility to pursue expansion opportunities within and outside the NLEX concession and, at the same time,
maintain a steady flow of dividends to shareholders.
See Note 29 – Financial Risk Management Objectives and Policies – Capital Management to the
accompanying financial statements in Item 7 for a detailed discussion of the Company‟s capital
management.
Contractual Obligations and Commercial Commitments
Contractual Obligations
For a detailed discussion of our contractual obligations, see Note 28 – Significant Contracts and
Commitments to the accompanying consolidated financial statements in Item 7.
Commercial Commitments
SCTEX Concession Agreement. In 2010, MNTC entered into a Concession Agreement with BCDA,
granting MNTC the usufructuary rights to manage, maintain and operate the 94-kilometer SCTEX for a
period of 25 years, extendable by another 8 years. In consideration, MNTC will pay BCDA semi-annual
concession fees as stipulated in the Concession Agreement. To secure this obligation to pay concession fees
and perform committed maintenance, enhancement and improvement works, MNTC has to issue a standby
letter of credit effective for one year, which shall be automatically renewed every year.
As of February 23, 2011, the parties are still in the process of obtaining certain consents and
formalizing the STOA and therefore the SCTEx had not been assigned and turned over to MNTC.
Others. On April 14, 2009, MNTC, under a competitive bidding, has awarded the Civil Works
contract to Leighton Contractors (Asia) Limited (LCAL), a construction unit of Leighton International
Limited. Meanwhile, the FOE Supply, Design and Installation contract was awarded to Egis Projects
Philippines, Inc. (EPPI). The Civil Works Construction Agreement and the FOE Supply, Design and
Installation Agreement were executed by MNTC with LCAL and EPPI, respectively, in relation to the
construction of the 2.7-kilometer Segment 8.1 stretching from Mindanao Avenue to NLEX.
See Note 28 – Significant Contracts and Commitments to the accompanying consolidated financial
statements in Item 7.
34
Quantitative and Qualitative Disclosures about Market Risks
MPTDC‟s principal financial instruments comprise of cash and short-term deposits and financial guarantee
issued to TMC under Operation and Maintenance Agreement (OMA). MPTDC has various other financial
instruments such as trade debtors and trade creditors, which arise directly from its operations. The main
risks arising from the Company‟s financial instruments are credit risk and liquidity risk.
Credit risk. As a result of issued guarantee on obligations of TMC under the Operate and Maintenance
Agreement, the Company may incur potential financial losses in the event of default by TMC. Receivable
balances, however, are monitored on an on-going basis with the result that the Company‟s exposure to bad
debts is insignificant.
Liquidity risk. Prudent liquidity risk management implies maintaining cash and cash equivalents to meet
operating capital requirements. The Company‟s objective is to maintain a balance between continuity of
funding and flexibility through an efficient collection of receivables. Potential exposure to liquidity risk
would result from the execution of financial guarantee in the event of TMC‟s failure to comply with O&M
Agreement.
The main risks arising from the Company‟s financial instruments are interest rate risk and foreign currency
risk which were both mitigated when the Company entered into cross currency swap and interest rate swap
transactions between July 1, 2008 and April 1, 2009 (see Note 29 of the attached AFS).
Impact of Inflation and Changing Prices
Inflation can be a significant factor in the Philippine economy, and we are continually seeking ways to
minimize its impact. The average inflation rate in the Philippines in 2010 was 3.8% compared with 3.2% in
2009. Though inflation is expected to increase moving forward, the adverse impact of inflation on
operations could be offset by increase in toll revenues from periodic toll rate adjustments.
Risks and Uncertainties
Reliance on the Supplemental Toll Operation Agreement (STOA). Substantially all of MNTC‟s assets and
revenues relate to the rights, obligations and privileges it holds under the Supplemental Toll Operation
Agreement dated April 30, 1998, among the Government (acting by and through the Toll Regulatory Board)
as the grantor (the „„Toll Road Grantor‟‟), Philippine National Construction Corporation („„PNCC‟‟) as
franchisee and MNTC (as the „„Toll Road Concessionaire‟‟) (the „„Toll Road Concession Agreement‟‟).
MNTC‟s right to finance, design, construct, rehabilitate, expand, operate and maintain the NLEX derives
from the Toll Road Concession Agreement. Under the Toll Road Concession Agreement, MNTC was
granted the toll road concession, pursuant to which it has the exclusive right to finance, design, construct,
rehabilitate, expand, operate and maintain the project roads constituting the NLEX as toll roads and to install
and collect revenue through a tollway collection system (the „„Toll Road Concession‟‟). MNTC has sub-
contracted many of its
operational and maintenance obligations under the Toll Road Concession to TMC, an associate of the
Company.
Under the original terms of the Toll Road Concession Agreement, the Toll Road Concession was due to
expire on December 31, 2030 (the „„Toll Road Concession Period‟‟). On October 16, 2008, the Board of
Directors of the Toll Regulatory Board approved the extension of the Toll Road Concession Period to
December 31, 2037. However, there can be no assurance that the Toll Road Concession will be extended
beyond 2037.
The Toll Regulatory Board may unilaterally terminate the Toll Road Concession Agreement prior to the
expiry of the Toll Road Concession Period without compensation to MNTC if MNTC does not rectify
certain specified defaults by it within the applicable cure periods specified in the Toll Road Concession
Agreement. Accordingly, MNTC‟s rights to operate and collect revenue from the NLEX depend upon its
compliance with, and the performance of its obligations under, the Toll Road Concession Agreement. For
example, under the terms of the Toll Road Concession Agreement, the concession granted to MNTC may be
terminated prior to the end of the Toll Road Concession Period if MNTC materially fails to perform the
operation and maintenance of the project roads in accordance with the standards approved by the Toll
35
Regulatory Board, or if MNTC is persistently or flagrantly in breach of any material obligation under the
Toll Road Concession Agreement. In addition, if MNTC‟s rights under the Toll Road Concession
Agreement are terminated by the Toll Regulatory Board, there can be no assurance that the successor
concessionaire would sub-contract its operational and maintenance obligations under the Toll Road
Concession to TMC.
The business, financial condition and results of operations of the Company could be materially and
adversely affected if, for any reason, the Toll Road Concession Agreement or any part thereof is cancelled,
terminated, becomes invalid or unenforceable or otherwise ceases to have full force and effect.
Traffic Volume. Revenues from the Company‟s toll road operations principally depend upon the number and
type of motor vehicles using the NLEX. Traffic volume is directly and indirectly affected by a number of
factors, including the availability, quality, proximity and cost of alternative roads and alternative modes of
transportation and Government economic and transportation policies. More generally, traffic volumes
depend to a large extent on the continued economic growth and development of the Philippines and, in
particular, Metro Manila and the special economic zones of Subic and Clark.
Traffic volume on the NLEX is also influenced by traffic volumes on expressways, highways and other
roads which are part of the regional highway system and network. There can be no assurance that changes in
this highway system and network, in particular in Metro Manila or the special economic zones of Subic and
Clark, will not adversely affect traffic volume on the NLEX. For example, significant construction projects
in Metro Manila, neighboring roads, highways or expressways could adversely impact traffic volume on the
NLEX. Additionally, substantial delays in the completion of, or cancellations of, any of the planned
expressways, highways and other roads that would offer access to or from the NLEX could lead to a
decrease in traffic volume.
Fuel shortages and increases in fuel prices may adversely affect traffic volumes on the NLEX. Fuel prices
are inherently volatile and have been high in recent years. If the cost of fuel in the Philippines remains high
or increases further, motorists in the Philippines may limit automobile usage or elect to use alternative
means of transportation in an attempt to offset high fuel costs. Furthermore, higher global oil prices and
increased demand for fuel may lead to fuel shortages and fuel rationing in the Philippines. If fuel shortages
or rationing occur in Luzon, motorists may be forced to drive less frequently, reducing traffic volumes on
the NLEX.
Traffic volumes on the NLEX are affected by competition from other routes and alternative modes of
transportation. The NLEX, unlike the non-toll MacArthur Highway, requires motorists to pay a toll for every
journey. For these motorists, the toll costs may outweigh the benefits of convenience or lower traffic
congestion. It is possible that the public may react adversely to any increase in toll tariffs in the future by
avoiding or limiting their use of the project roads. For example, the Company believes the Government‟s
implementation of the Anti-Overloading Law, R.A. 8794, has resulted in lower traffic volumes on the
NLEX, particularly with regard to larger vehicles, such as trucks and buses. In addition, there can be no
assurance that existing roads or modes of transport will not significantly improve their services or that
alternative roads will not be built which may charge lower tolls or provide more direct routes to locations
served by the NLEX.
A significant or sustained decline in traffic volume on the NLEX as a result of the factors described above,
could have a material adverse effect on the Company‟s business, results of operations and financial
condition.
Expiry of PNCC Franchise. The rights of MNTC to operate the NLEX pursuant to the STOA arose out of
the assignment by the PNCC of its usufructuary rights, interests and privileges under the PNCC franchise
(Presidential Decree Nos. 1113 and 1894) and which was approved by the President of the Philippines on
May 16, 1995. The PNCC franchise (the usufructuary rights, interest and privileges of which were assigned
to MNTC) expired on May 1, 2007. There is a bill extending the said franchise by another 25 years which
has passed second reading in the House of Representatives. The bill has to be passed by the Senate and
approved by the President of the Philippines in order to become law.
In any event, pursuant to Clause 2.6 of the STOA, a Toll Operation Certificate (TOC) was issued on October
13, 2001 by the TRB, which authorizes MNTC to continue to operate the NLEX and collect tolls
notwithstanding the expiry and subsequent non-renewal of the PNCC franchise.
36
Toll Rate Adjustments. MNTC derives substantially all of its revenue from toll collections from the users of
the NLEX. The Toll Road Concession Agreement establishes a toll rate formula and adjustment procedure
for setting the „„Authorized Toll Rate,‟‟ the maximum authorized amount that can be assessed upon toll
users. The Toll Road Concession Agreement also provides for both regular adjustments every two calendar
years and interim adjustments to the Authorized Toll Rate in certain circumstances, particularly changes in
the Philippines consumer price index. However, no assurance can be given that adjustments to the
Authorized Toll Rate will be made at the times or in the amounts contemplated by the Toll Road Concession
Agreement or will be favorable to MNTC or the Company.
The Toll Road Grantor under the Toll Road Concession Agreement has agreed to compensate MNTC for
certain losses of revenue resulting from failure to effect adjustments in the Authorized Toll Rate in
accordance with the Toll Road Concession Agreement. However, no assurance can be given that the Toll
Road Grantor will do so. If, for any reason, the Authorized Toll Rate is not adjusted in accordance with the
Toll Road Concession Agreement or is substantially decreased, the resulting effect on toll revenues could
have a material adverse effect on the Company‟s business, financial condition and results of operations.
Funding Challenges. The Toll Road Concession Agreement contemplates a three-phase program for the
development of a regional highway network in the region north of Metro Manila. The first phase was
initiated in March 2001 and was completed in February 2005. Pursuant to the Toll Road Concession
Agreement, MNTC is, under certain specified conditions, obligated to participate in the further
expansion of the project roads, including Phases II and III. The obligation to commence construction on a
given Phase or Segment is subject to compliance with certain requirements, including the delivery by the
Toll Road Grantor of the land required and actual access and possession by MNTC of the land required,
ready for fencing and construction, and proof of availability of funds. Work on the first segment of Phase II,
an extension spanning a total of 2.7 kilometers, began in April 2009.
Any future construction obligations arising under the Toll Road Concession Agreement may require
significant capital expenditures for the funding of roadway construction costs, the development of toll
facilities and amenities, and related costs. The Company is obligated under the Toll Road Concession
Agreement to maintain the toll roads it operates including both routine and heavy maintenance and repairs.
There can be no assurance that MNTC will have sufficient cash flow or be able to obtain third party
financing necessary to finance MNTC‟s construction and maintenance obligations. If MNTC were unable to
obtain financing for its future capital expenditures, it may have difficulty meeting its construction and
maintenance obligations under the Toll Road Concession Agreement. In certain cases, the inability of
MNTC to meet these obligations is a default under the Toll Road Concession Agreement, which could cause
the Company‟s business, financial condition and results of operations to be materially adversely affected.
Toll Collection Accuracy. Substantially all of the Company‟s toll revenue is derived from the collection of
tolls, the receipt of which is highly dependent upon the integrity of its toll collection system. Most of the toll
revenues collected on the NLEX are collected in cash, as opposed to through cashless electronic collection
systems. The level of revenues derived from the collection of tolls may be reduced by leakage through toll
evasion, fraud or technical faults in MNTC‟s toll collection systems. MNTC has established policies and
procedures designed to prevent such leakage, including the prevention of toll-evasion, user fraud, employee
fraud and theft. However, there can be no assurance that these policies and procedures will be effective. A
failure to control leakage in the toll collection systems could have a material adverse effect upon the
Company‟s business, financial condition and results of operations.
Capacity Limits. There are limits to the number of vehicles that can efficiently use the NLEX in any given
period. For example, at certain interchanges in the Metro Manila region, the need for a toll plaza at the
entrance to the expressway may, during periods of high congestion, create a bottleneck restricting traffic
flow onto the expressway and limiting traffic volumes of paying customers. High levels of traffic congestion
could result in customer dissatisfaction and reduce the volume of toll-paying motorists. As a result, MNTC
may be required to add additional facilities or undertake additional projects to expand or modify its
operations in particular areas in order to increase the efficiency and maintain customer satisfaction. In such a
case, MNTC would need to procure the necessary approvals, permits and licenses from the appropriate
Governmental bodies and obtain adequate financing.
37
Toll Road Construction Risks. The construction of a toll road, which generally requires several years and
significant capital expenditures, is subject to numerous risks. MNTC has recently begun Phase II with the
construction of Segment 8.1. In addition, MNTC has conducted pre-feasibility studies for the
implementation of Segments 9 and 10.
These construction activities, including the activities of MNTC‟s employees, partners and subcontractors,
expose MNTC to a number of risks, including the following:
MNTC relies on the government to acquire the land required for the toll roads. This process, which
can involve the expropriation of land and the resettlement of existing individuals and businesses, is
politically sensitive and can involve significant delays;
MNTC relies on third party subcontractors to carry out its construction projects, which can expose
it to increased labor costs, the failure of contractors to fulfill their obligations, contractual disputes
and claims of vicarious liability;
Construction projects are subject to significant interruptions, delays and unforeseen costs and
liabilities, including increased raw material and labor costs, unfavorable financing conditions,
damage or injury to third parties, and interruptions in construction due to bad weather,
environmental or engineering problems, site accidents, or delays in obtaining licenses and permits;
and
A failure to timely complete construction of its various projects could result in a default by MNTC
under the terms of the Toll Road Concession Agreement.
These risks, alone or in the aggregate, could have a material and adverse effect on the business, financial
condition and results of operations of the Company.
Inflation on Repairs and Maintenance Costs. Maintenance on the NLEX is generally divided into routine
maintenance, such as the cleaning of road surfaces, the dredging of drainage systems and landscaping, and
heavy maintenance, such as major repairs, repaving and rehabilitation. MNTC expects to incur capital
expenditure for periodic resurfacing of the pavement, improvement of connecting roads to the NLEX,
repairs to the buildings and facilities, upgrading of toll systems, and construction of ancillary facilities.
MNTC also maintains a heavy maintenance program that is reviewed periodically. There can be no
assurance that actual amounts spent on routine or heavy maintenance will not be substantially higher than
they have been in the past, due to unforeseen circumstances. In particular, higher than expected usage could
require additional repairs or may require a major overhaul of all or part of the NLEX to be undertaken earlier
or more frequently than anticipated. If actual maintenance expenses significantly exceed projected expenses,
the Company‟s business, results of operations and financial condition could be materially adversely affected.
Value-Added Taxes. When RA 9337 took effect, the BIR issued RR No. 16-2005 on September 1, 2005,
which, for the first time, expressly referred to toll road operations as being subject to VAT. This
notwithstanding VAT Ruling 078-99 issued in August 9, 1999 where BIR categorically ruled that MNTC, as
assignee of PNCC franchise, is entitled to the tax exemption privileges of PNCC and is exempt from VAT
on its gross receipts from the operation of the NLE.
However, the TRB, in its letter dated October 28, 2005, directed MNTC (and all Philippine toll expressway
companies) to defer the imposition of VAT on toll fees. Due to the possibility that MNTC may eventually be
subjected to VAT, MNTC, in 2005, carved out the input tax from its purchases of goods and services
(includes input tax in relation to the Project construction cost) in 2004 which were previously recorded as
part of service concession assets and recorded such input tax, together with the input tax on 2005 purchases
and onwards, as a separate ―Input value added tax‖ account and accordingly reflected the input tax in the
VAT returns.
In September 2005, MNTC also requested for confirmation from the BIR that MNTC can claim input VAT
for the passed-on VAT on its purchases of goods and services for 2003 and prior years. The request for
confirmation is still pending as of February 23, 2011.
On December 21, 2009, BIR issued RMC No. 72-2009 as a reiteration of RMC No. 52-2005 imposing VAT
on the tollway operators. However, on January 21, 2010, TAP issued a letter to tollway operators referring
to a letter issued by TRB to TAP dated December 29, 2009 reiterating TRB„s previous instruction to all toll
operators to defer the imposition of VAT on toll fees until further orders from their office. The TRB
directive resulted from the Cabinet meeting held last December 29, 2009 at Baguio City where the
deferment of the implementation of RMC No. 72-2009 was discussed.
38
On March 2010, the BIR issued RMC 30-2010 directing the imposition of the 12% VAT starting April 1,
2010, with coverage initially limited to private vehicles. However, on March 30, 2010, the TAP issued a
letter to tollway operators referring to a letter issued by TRB to TAP dated March 30, 2010 directing the
deferment of collection of VAT on toll fees until further orders from their office.
To fully implement the imposition of the VAT on toll fees, the BIR issued RMC No. 63-2010 dated July 19,
2010 which states that:
1. The VAT shall be imposed on the gross receipts of tollway operators from all types of vehicles
starting August 16, 2010.
2. Tollway operators who have been assessed for VAT liabilities on receipts from toll fees for
prior periods can apply for Abatement of the tax liability, surcharge and interest under Section
204 of the National Internal Revenue Code (NIRC) and RR No. 13-2001.
3. The accumulated input VAT account of the toll companies shall have a zero balance on August
16, 2010. Any input VAT that will thenceforth be reflected in the books of accounts and other
accounting records of tollway operators will have to be for purchases of goods and services
delivered/rendered and invoiced/receipted on or after August 16, 2010.
4. All tollway operators are required to comply with the invoice/receipt format prescribed under
RMC No. 40-2005.
Meanwhile, on August 4, 2010, MNTC, in accordance with RMC No. 63-2010, applied for abatement of
alleged VAT liabilities for taxable years 2006 and 2007. The BIR has yet to resolve the application for
abatement of MNTC.
On August 13, 2010, the SC issued a TRO on the imposition of the 12% VAT on tollway operators. The
TRO has not been lifted as of February 23, 2011.
In view of the foregoing and in the light of the quick response of the Cabinet and the TRB on the BIR RMC
No. 72-2009 and TRO issued by the SC on the imposition of VAT, MNTC continues to defer the imposition
of VAT on toll fees from motorists and correspondingly, with VAT being a passed-on tax, MNTC did not
recognize any VAT liability.
MNTC, together with other toll road operators, continues to discuss the issue of VAT with the concerned
government agencies.
At present, the BIR continuously upholds its position that MNTC is indeed subject to VAT on toll revenues,
stating that inasmuch as there is no concrete ruling yet on the exemption from VAT on toll fees, MNTC„s
receipts from toll fees should be considered as subject to VAT. In relation thereto, the BIR has issued the
following VAT assessments:
MNTC received a Formal Letter of Demand from the BIR on March 16, 2009 requesting MNTC to
pay deficiency VAT plus penalties amounting to P=1,010.5 million for taxable year 2006.
MNTC received a Final Assessment Notice from the BIR dated November 15 2009, assessing
MNTC for deficiency VAT plus penalties amounting to P=557.6 million for taxable year 2007.
MNTC received a Notice of Informal Assessment from the BIR dated October 5, 2009, assessing
MNTC for deficiency VAT plus penalties amounting to P=470.9 million for taxable year 2008.
On May 21, 2010, the BIR issued a Notice of Informal Conference assessing MNTC for deficiency
VAT plus penalties amounting to P=1.0 billion for taxable year 2009. Included also in the Notice is
the increase of the deficiency VAT for taxable year 2008 from P=470.9 million to P=1.2 billion
(including penalties).
Notwithstanding the foregoing, management believes, in consultation with its legal counsel, that in any
event, the STOA amongst MNTC, ROP, acting by and through the TRB, and PNCC, provides MNTC with
legal recourse in order to protect its lawful interests in case there is a change in existing laws which makes
the performance by MNTC of its obligations materially more expensive. However, there can be no assurance
that such remedies will be effective. If the Bureau of Internal Revenue were to rule adversely to the position
of toll road operators, including the Company, the resulting impact of the additional tax liability could be in
excess of the provisions discussed above, and could therefore have a material adverse effect on the business,
financial condition and results of operations of the Company. In addition, even if the Bureau of Internal
Revenue permits the offsetting of tax credits for input VAT against tax liabilities accruing in respect of
39
uncollected output VAT, the input VAT that the Company accrues may not be sufficient to offset output
VAT levied on toll fees collected by the Company. Additionally, in the event that the 12% VAT on toll fees
is implemented and is passed on to toll road users, the additional expense could cause a decrease in traffic
volumes on the NLEX.
Concession Termination. MNTC‟s concession rights under the STOA shall be in effect for a period
commencing on June 15, 1998 until December 31, 2030, or 30 years after the issuance of the corresponding
Toll Operation Permit for the last completed Phase, whichever is earlier, unless further extended pursuant to
the provision of the STOA. On October 16, 2008, the TRB approved the extension of the concession period
for another seven (7) years, thus, extending the concession period until December 31, 2037.
Prior to such expiration, and subject to the terms of the STOA, the Concession granted to MNTC may be
terminated by the Grantor if MNTC commits any of the following and fails to remedy the same within a
period of at least 3 months from receipt of the written notice of default from the Grantor:
▪ Materially fail to perform the operation and maintenance of the Project Roads in accordance with
the standards approved by the Grantor; or
▪ Fail to implement the Project; or
▪ Become subject to liquidation or dissolution proceedings; or
▪ Be declared insolvent or in default of its loans; or,
▪ Be persistently or flagrantly in breach of any material obligation under the STOA for causes solely
attributable to MNTC; or
▪ Abandon the construction of the operation and maintenance of the Project Roads.
As of December 31, 2010, MNTC has complied with and performed its obligations, and has not received
any notice of default under the STOA.
Regulated Industry. The Company‟s toll road operations are subject to substantial regulatory oversight, and
the business, operations and financial performance of the toll road assets may be significantly affected by
changes in the Government‟s rules and regulations or the interpretation or application thereof. The Toll
Regulatory Board, which is also the counterparty to the Toll Road Concession Agreement, is the
Government agency authorized to regulate toll road operations in the Philippines. The Toll Regulatory
Board is the key regulatory body overseeing MNTC, and regularly inspects the NLEX to ensure that MNTC
meets Government standards for construction, maintenance and operation of the toll roads and facilities.
Considering that the rights, obligations and privileges of MNTC with respect to the NLEX are highly
dependent on Government requirements and regulations, there can be no assurance that future regulatory
rulings and legislations will not adversely affect MNTC‟s business.
Any future regulatory rulings and legislations that has a material adverse effect on the rights and privileges
of MNTC or its ability to comply with its financial and/or other contractual obligations under the STOA
constitutes Material Adverse Grantor Action and could be a ground for default of the Grantor.
MNTC and its sub-contractors, including TMC, are required to comply with all applicable health,
operational and safety regulations in the operation of the toll road assets. Future regulatory changes may
result in increased costs and delays. In addition, licenses or permits obtained by MNTC and its
subcontractors under applicable Philippine laws and regulations may be subject to conditions, compliance
with which may be expensive, difficult or impossible. Governmental authorities could take enforcement
actions against MNTC or its sub-contractors for any failure to comply with the relevant regulations and meet
the relevant conditions. These enforcement actions could result in, among other things, the imposition of
fines or the revocation of licenses and permits granted to MNTC and its sub-contractors. Compliance with
these regulations could require MNTC to make substantial capital expenditures and divert funds from
planned construction projects or other uses.
MNTC is also required to comply with numerous laws and regulations relating to land use and the protection
of the environment, including the rules and regulations of the DENR and other relevant Government
authorities. MNTC may be required to incur significant costs and expenses in order to comply with these
rules and regulations. In addition, there can be no assurance that these rules and regulations will not become
more stringent in the future or that the costs of compliance will not increase. A failure by MNTC or its sub-
contractors to comply with environmental laws and regulations could result in the imposition of civil or
40
criminal liability, liens, fines, or increased expenditures in order to bring MNTC‟s toll road assets and
facilities into compliance.
A failure to comply with applicable health, operational, safety, environmental or other rules and regulations
could have a material adverse effect on the Company‟s business, financial condition and results of
operations.
Legal Proceedings. MNTC is a party to various pending legal proceedings. Any adverse rulings or
decisions in certain proceedings may have a material impact on MNTC‟s business. MNTC intends to
diligently pursue and exhaust all legal remedies available to it in the event of any adverse ruling or decision
in any of these proceedings.
Political and Economic Factors. MNTC‟s business can be influenced by the general political and economic
situation of the country. In the past, the Philippines experienced periods of slow or negative economic
growth, and has from time to time experienced political instability. While the political situation and the
Philippine economy have since improved, any political and/or economic instability in the future may have a
negative effect on the business and results of operations of MNTC.
Historically, traffic volume in NLEX has consistently increased despite the several crises that have hit the
country since 1982.
Occurrence of Unforeseen Events. The use of the NLEX may be interrupted or otherwise affected by a
variety of events, including force majeure, serious traffic accidents, natural disasters, defective design and
construction, labor disputes and other unforeseen circumstances and incidents. Nevertheless, MNTC
addresses these risks by providing motorists with smoother road pavement, visible reflectorized lane
markings, median concrete barriers to prevent head-on collisions, emergency parking areas, sufficient
lighting, as well as 24-hour emergency assistance, consisting of telephone operators, traffic patrol teams,
first aid emergency trucks, and tow trucks. In addition, MNTC procures, on an annual basis, a Material
Damage and Business Interruption Insurance from reputable insurance companies. This covers, subject to
policy terms and conditions, the full replacement value of the assets damaged, and the debt servicing and
fixed operating costs and expenses during an agreed period. In the event of a temporary system failure,
detailed procedures have been developed by Transroute, our FOE technology provider, for operating in a
“downgraded” mode. Sufficient supply of FOE replacement parts is maintained by TMC and the
maintenance personnel are always on stand-by 24 hours a day / 7 days a week, ready to repair any damage as
soon as possible. Due to the modular nature of the toll equipment, disruption caused by damage to any
isolated equipment should not, in the normal course of activities, cause any major disruption in service. Toll
plazas have also been dimensioned with a certain factor of redundancy built-in, in case any toll lane is down
due to accident or other reasons.
In addition, the STOA recognizes the occurrence of force majeure and affords relief to MNTC in case of
such occurrence. Except as otherwise discussed above, the other items under Part 1 (Item 1) are not
applicable to FPIDC and its material Subsidiaries.
As discussed in the accompanying notes to the Audited Financial Statements in Item 7, on October 28, 2005,
the TRB directed the Company to defer the imposition of Value Added Tax (VAT) on toll fees, thus the
Company deferred and continues to defer the imposition of VAT from the motoring public. In the
meantime, the Company recognized input VAT. The Company, together with other toll road operators, is in
discussion with the concerned government agencies on the issue of VAT. The ultimate outcome of these
matters cannot be presently determined.
41
Item 7. FINANCIAL STATEMENTS
Our consolidated financial statements (pages F-1 to F-130) and supplementary schedules (pages S-1 to S-9)
listed in the accompanying Index to Financial Statements and Supplementary Schedules on page 62 are filed
as part of this Annual Report.
42
PART III -- CONTROL AND COMPENSATION INFORMATION
Item 8. DIRECTORS AND EXECUTIVE OFFICERS
Board of Directors as of December 31, 2010
Name Position
Mr. Manuel V. Pangilinan Chairman
Mr. Jose Ma. K. Lim Director
Mr. David J. Nicol Director
Mr. Ramoncito S. Fernandez Director, President and Chief Executive
Officer
Mr. Christopher Daniel C. Lizo Director and Chief Finance Officer
Mr. Rodrigo E. Franco Director
Mr. Albert F. Del Rosario Director
Mr. Artemio V. Panganiban Independent Director
Mr. Felipe M. Medalla Independent Director
Ms. Arlyn Sicangco-Villanueva Independent Director
Atty. Alex Erlito S. Fider Director and Corporate Secretary
Manuel V. Pangilinan Manuel V. Pangilinan, founded First Pacific in 1981 and served as its Managing
Director until 1999. He was appointed as Executive Chairman until June 2003,
when he was named CEO and Managing Director. Within the First Pacific
Group, he holds the positions of President Commissioner of P.T. Indofood
Sukses Makmur Tbk, the largest food company in Indonesia.
He was named Chairman of Philippine Long Distance Telephone Company
(PLDT), the country‟s dominant telecom company after serving as its President
and CEO until February 2004. He also serves as Chairman of Maynilad Water
Services, Inc., Medical Doctors, Inc., Metro Pacific Investments Corporation
(MPIC), Landco Pacific Corporation, Pilipino Telephone Corporation, and Smart
Communications, Inc., the largest mobile phone operator in the Philippines. Mr.
Pangilinan concurrently serves as President and CEO of Manila Electric
Company, the largest electric distributor in the country, after being appointed last
July 2010.
Outside the First Pacific Group, Mr. Pangilinan is also Chairman of the Board of
Trustees of Ateneo de Manila University and Chairman of the Board of Trustees
of San Beda College. He was Chairman of the Hong Kong Bayanihan Trust, a
non-stock, non-profit foundation which provides vocational, social and cultural
activities for Hong Kong‟s foreign domestic helpers and served as a member of
the Boar of Overseers of the Wharton School, University of Pennyslvania. Mr.
Pangilinan is Chairman of the Philippine Business for Social Progress (PBSP), a
social action organization made up of the country‟s largest corporations, Vice
Chairman of the Foundation for Crime Prevention, a private sector group
organized to assist the government with crime prevention, a member of the
Board of Trustees of Caritas Manila and Radio Veritas-Global Broadcasting
Systems, Inc., a former Commissioner of the Pasig River Rehabilitation
Commission, and a former Governor of the Philippine Stock Exchange. He
received his Master‟s degree in Business Administration from Wharton School of
Finance and Commerce, University of Pennsylvania, Philadelphia.
43
Jose Ma. K. Lim Jose Ma. K. Lim joined Fort Bonifacio Development Corporation (FBDC) in
1995 as Treasury Vice President and was eventually appointed as its Chief
Finance Officer. With the divestment in FBDC, Mr. Lim assumed the position
of Group Vice President and Chief Finance Officer of FBDC‟s then parent
company, Metro Pacific Corporation, from 2001 to 2003. He was appointed
President and CEO of MPC in June 2003 where he continues to serve as Director
to this day.
In 2006, Metro Pacific Investments Corporation (MPIC) was established and Mr.
Lim was appointed as President and CEO and he continues to serve as such to
date. He is also currently a Director in the following MPIC subsidiary and/or
affiliate companies: Metro Pacific Tollways Corporation, Manila North Tollways
Corporation, Tollways Management Corporation, Maynilad Water Services, Inc.,
Medical Doctors, Inc. (owner and operator of the Makati Medical Center), Davao
Doctors Hospital (Clinica Hilario) Inc., Landco Inc. and Costa de Madera. Mr.
Lim likewise serves as President of Metro Strategic Infrastructure Holdings, Inc.
which holds a minority ownership interest in Citra Metro Manila Tollways Corp.
(Skyway) where he also continues to serve as a Director.
He is active in the Management Association of the Philippines and has served as
Vice-Chair of the Corporate Governance Committee since 2007. Mr. Lim
graduated from the Ateneo de Manila University, with a Bachelor of Arts degree
in Philosophy. He received his MBA degree in 1978 from the Asian Institute of
Management.
Ramoncito S. Fernandez Mr. Ramoncito S. Fernandez, was recently appointed as the President & CEO of
Metro Pacific Tollways Corporation (formerly First Philippine Infrastructure,
Inc.) and Tollways Management Corporation under the Metro Pacific Investment
Corp.
He holds directorships in Metro Pacific Tollways Corporation, Tollways
Management Corporation, Manila North Tollways Corporation, SMART
Communications, Inc., Pilipino Telephone Corporation, Smart Broadband, Inc.,
PLDT Subic Telecom, Inc., PLDT Clark Telecom, Inc., PLDT Global
Corporation, Smart Money Holdings Corporation, Smart Money, Inc., Tahanan
Mutual Building & Loan Association, and Telecommunications Solutions, Inc. (a
Mauritus registered company).
Mr. Fernandez has almost 2 years of experience in International Carrier Business
and has over 16 years experience in materials, management, industrial marketing
and sales. He was the Head of International and Carrier Business (PLDT &
SMART) and Global Access Group (Smart) from 2007 until December 31, 2008.
He was the Administration and Materials Management Head of Smart from
2000, and of PLDT from 2004, until December 31, 2007. He was the Executive
Vice President in charge of marketing, sales and logistics of Starpack
Philippines, Inc. until June 2000. He also worked for Union Carbide Philippines
in manufacturing and industrial engineering.
Mr. Fernandez obtained his Bachelor of Science Degree in Industrial
Management Engineering from the De La Salle University and Master's Degree
in Business Management from the Asian Institute of Management.
Christopher C. Lizo Christopher C. Lizo currently serves as the Chief Finance Officer of Metro
Pacific Tollways Corporation and manages the entire financial aspects across all
companies under MPTC. Concurrently, he is also the Treasurer of MPTC,
Manila North Tollways Corporation and Tollways Management Corporation. He
has 16 years of vast experience in finance and accounting for having worked
with the Metro Pacific Group. As Treasury Manager in 2000, Mr. Lizo has
successfully handled the retirement of its seven-year debt reduction program that
44
geared the company into reorganization and recapitalization. After Metro Pacific
Investments Corporation was established in 2006, Mr. Lizo was appointed
as Controller and Vice President for Treasury of MPIC to oversee its strategic
business and financial planning process. In addition, he also handled the
administration, finance, credit and risk management, budget and accounting
departments of the company. Mr. Lizo became a director of MPIC in 2007.
Rodrigo E. Franco
Rodrigo E. Franco is President and Chief Executive Officer of the Manila North
Tollways Corporation (MNTC). He was previously MNTC‟s Executive Vice
President, Chief Operating Officer and Chief Finance Officer from 2003 until his
appointment as top executive of the firm in January 2009.
During his tenure as EVP/COO/CFO of MNTC, Mr. Franco was primarily
responsible in managing MNTC‟s project finance facilities from multilateral and
commercial banking sources. He was also involved in identifying and mitigating
risk exposure of the company, managing relationship with the shareholders and
other stakeholders, and developing solutions for Finance-related issues.
Before joining MNTC in April 2003, Mr. Franco spent 20 years with JPMorgan
Chase Bank. He was Vice President for Investment Banking when he left the
Manila branch of JPMorgan Chase by the end of 2002. He assisted several
Philippine companies raise funds from the international loan and capital markets,
and had been involved in originating and executing a number of mergers and
acquisitions, equity capital markets and loan and bond restructuring transactions.
Mr. Franco graduated with honors from the Ateneo de Manila University with a
Bachelor of Science degree in Management Engineering. He obtained his
Masters in Business Administration degree from the Ateneo Graduate School of
Business in Manila.
David John Nicol David John Nicol is currently the Chief Finance Officer of Metro Pacific
Investments Corporation (MPIC). His expertise comes from a consistent record
of building shareholder value through operational improvement, restructuring,
M&A and entering new markets in a wide range of B2B sectors both
domestically and internationally, in listed and PE backed environments. His 10-
year appointment as Chief Finance Officer and eventually as Group Chief
Executive Officer of First Pacific Company Ltd affiliate Berli Jucker Plc, drove
shareholder‟s value growth and steered the company past the Asian Financial
crisis.
Prior to joining MPIC, Mr. Nicol was the Director and CFO of Reconomy
(Holdings) Ltd where he led the acquisition of nine businesses in UK‟s waste
management and recycling sector. He held positions as President and CEO of
Sirva, Inc for Europe and Asia Pacific and moved on to be the Interim CEO of
Pinnacle Regeneration Group, a leading privately owned social infrastructure
manager and refurbishment provider.
Felipe M. Medalla
(independent) Dr. Felipe M. Medalla is currently professor at the School of Economics of the
University of the Philippines, where he was dean before he became NEDA
Director General and Secretary of Socioeconomic Planning from July, 1998 to
January 2001. He was Vice-President for Planning and Finance of U.P. in 1989
to 1991, where he played an important role in restructuring the university‟s
tuition fee structure, increasing tuition fees by more than 600% to finance a
massive increase in the university‟s resources for scholarships and financial
assistance to students from low income families. Dr. Medalla currently teaches
public finance, macroeconomics and microeconomics. He also taught courses in
urban and regional economics and regulatory economics. He has written papers
on a wide range of topics such as the economics of land conversion, tax reform,
public debt management, population policy, and errors in the measurement of
Philippine economic growth. He has undergraduate degrees in economics and
45
accounting from De La Salle University, an M.A. in economics from U.P. and a
Ph.D. in economics from Northwestern University. He was president of the
Philippine Economic Society and is now Chairman of the Foundation for
Economic Freedom, an NGO whose main advocacies are fiscal discipline and
sustainability and the elimination of government policies and programs that stifle
competition, distort incentives and reduce the efficiency of markets.
Albert F. Del Rosario The former Ambassador of the Republic of the Philippines to the United States
of America from October 2001 to August 2006 earned his Bachelor's Degree in
Economics at New York University. He is currently Chairman of Gotuaco, del
Rosario Insurance Brokers, Inc., BusinessWorld Publishing Corporation, Makati
Foundation for Education, Stratbase, Inc. and is President of Philippine
Telecommunications Investment Corporation. Ambassador del Rosario serves as
Commissioner or Director in numerous companies and non-profit organizations
including First Pacific Company, PT Indofood Sukses Makmur Tbk, Philippine
Long Distance Telephone Company, Infrontier (Philippines), Inc., Metro Pacific
Investments Corporation, Metro Pacific Tollways Corporation, First Philippine
Infrastructure Development Corporation, Manila North Tollways Corporation,
Asia Traders Insurance Corporation, Landco Pacific Corporation, MediaQuest
Holdings, Inc., Philippine Cancer Society and is a member of the Board of
Trustees or Governors of the Makati Business Club, International Graduate
University, Washington, DC and Asia Society‟s International Council. He also
headed the development of Pacific Plaza Towers, Metro Pacific Corporation's
signature project in Fort Bonifacio's Global City.
In September 2004, Ambassador del Rosario was conferred the Order of
Sikatuna, Rank of Datu, by H.E. President Gloria Macapagal-Arroyo for his
outstanding efforts in promoting foreign relations for the Philippines. He is
moreover, a recipient of the EDSA II Presidential Heroes Award in recognition
of his work in fostering Philippine democracy and the Philippine Army Award
from H.E. President Corazon Aquino for his accomplishments as Chairman of
the Makati Foundation for Education. He was elevated to the Xavier Hall of
Fame in New York City in 2006.
Arlyn Sicangco-
Villanueva (independent)
Dr. Arlyn Sicangco Villanueva, a respected educator and accountant, is senior
partner of the accounting firm Sicangco Menor Villanueva & Co. and member of
the Philippine Institute of Certified Public Accountants (PICPA), the Association
of Certified Public Accountants in Public Practice (ACPAPP), the Association of
Certified Public Accountants in Education (ACPAE), the Management
Association of the Philippines, the Philippine Marketing Association and the
International Council on Hotel, Restaurant and Institutional Education, Asia
Chapter. She sits in the Boards of the Association of Catholic Universities of the
Philippines (ACUP), the Philippine Association of Collegiate Schools of
Business (PACSB) and the Metro Pacific Tollways Corporation. She is an
accreditor for the Philippine Accrediting Association of Schools, Colleges and
Universities (PAASCU).
She won the PAASCU James J. Meany Award in 2009, the PICPA Leadership
Award in 2005 and the Outstanding PERAA Member (TOPM) of the Private
Education Retirement Annuity Association (Teaching Category, Level A) in
2004.
As President of Holy Angel University and concurrently Dean of its Graduate
School since 2006, as well as Dean of its College of Business and Accountancy
for 22 years, Dr. Villanueva played a key role in transforming the University into
the biggest and most prestigious private school in Central Luzon. Today, the
University is the only school in the Philippines accredited by the International
Assembly for Collegiate Business Education (IACBE), and one of very few
tertiary schools granted autonomous status by the Commission on Higher
46
Education (CHED) and Level III accredited status by the Philippine Association
of Accredited Schools, Colleges and Universities (PAASCU).
Married to Atty. Cesar L. Villanueva, dean of the Ateneo Law School, with
whom she has three children (Gabby, Tessa and Maria), Dr. Villanueva hails
from Angeles City, Pampanga. She obtained the degree Bachelor of Science in
Accounting at the then Holy Angel College, Master in Business Management at
the Ateneo de Manila University and Doctor in Business Administration at the
De La Salle University.
Chief Justice Artemio V.
Panganiban (Independent) A consistent scholar, Chief Justice Panganiban obtained his Associate in Arts
“With Highest Honors” and later his Bachelor of Laws with “Cum Laude” and
“Most Outstanding Student” honors. He founded and headed the National Union
of Students of the Philippines. He is also the recipient of several honorary
doctoral degrees and placed sixth among 4,200 candidates who took the 1960 bar
examinations.
In 1995, he was appointed Justice of the Supreme Court, and in 2005, Chief
Justice of the Supreme Court of the Philippines. On his retirement on December
7, 2006, his colleagues acclaimed him unanimously as the “Renaissance Jurist of
the 21st Century.” Aside from being a prodigious decision writer, he also
authored eleven books while serving on the highest court of the land. His judicial
philosophy is “Liberty and Prosperity Under the Rule of Law.” A much sought-
after independent director and adviser of business firms, he also writes a column
in the Philippine Daily Inquirer. Prior to entering public service, Chief Justice
Panganiban was a prominent practicing lawyer, law professor, business
entrepreneur, civic leader and Catholic lay worker. He was the only Filipino
appointed by the late Pope John Paul II to be a member of the Vatican-based
Pontifical Council for the Laity for the 199the 1996-2001 term
Messrs. Medalla, Panganiban and Ms. Villanueva are independent directors. The Company‟s three
independent directors have one (1) share of the stock of the Company each in their respective names, are
college graduates and possess integrity, probity and assiduousness. They are persons who, apart from the
fees as directors of the Company, are independent of management and free from any business or other
relationship which could, or could reasonably, be perceived to materially interfere with their exercise of
independent judgment in carrying out their responsibilities as directors of the Company. Messrs. Del
Rosario, Medalla, Panganiban and Ms. Villanueva: (i) are not directors or officers or substantial
stockholders of the Company or its related companies or any of its substantial shareholders (other than as
independent directors of any of the foregoing); (ii) are not relatives of any director, officer or substantial
shareholder of the Company, or any of its related companies or any of its substantial shareholders; (iii) are
not acting as nominees or representatives of a substantial shareholder of the Company, or any of its related
companies or any of its substantial shareholders; (iv) have not been employed in any executive capacity by
the Company, or any of its related companies or by any of its substantial shareholders within the last five (5)
years; (v) are not retained as professional advisers by the Company, any of its related companies or any of
its substantial shareholders within the last five (5) years, either personally or through their firms; and (vi)
have not engaged and do not engage in any transaction with the Company or with any of its related
companies or with any of its substantial shareholders, whether by themselves or with other persons or
through a firm of which they are partners or companies of which they are directors or substantial
shareholders, other than transactions which are conducted at arms length and are immaterial or insignificant.
They do not possess any of the disqualifications enumerated under Section II (5) of the Code of Corporate
Governance and Section II (D) of SEC Memorandum Circular No. 16, Series of 2002.
Terms of Office
The directors of MPTC are elected each year to serve until the next annual meeting of stockholders and until
their successors are elected and qualified. The term of office of all officers is coterminous with that of the
Board of Directors that elected or appointed them.
47
Family Relationships
There are no other family relationships among the directors listed above.
Involvement of Directors and Officers in Certain Legal Proceedings
There have been no bankruptcy petition filed by or against any business of which any of the directors or
executive officers was a general partner or executive officer either at the time of the bankruptcy or within
two years prior to that time. No director or officer have been convicted by final judgment in a criminal
proceeding, domestic or foreign, or have been subject to a pending criminal proceeding, domestic or foreign,
excluding traffic violations and other minor offenses. No director or officer has been subject to any order,
judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, domestic or foreign, permanently or temporarily enjoining, barring, suspending or otherwise
limiting his involvement in any type of business, securities, and commodities or banking activities. No
director or officer has been found by a domestic or foreign court of competent jurisdiction (in a civil action),
the SEC or comparable foreign body, or a domestic or foreign stock exchange or other organized trading
market or self regulatory organization, to have violated a securities or commodities law or regulation, and
the judgment has not been reversed, suspended, or vacated.
Item 9. EXECUTIVE COMPENSATION
Standard Arrangements
Directors
Article II Section 7 of the Company‟s By-Laws provides:
“Section 7. Compensation – Directors, as such, shall be entitled to receive such reasonable compensation as
may be fixed by the majority of the Board of Directors provided that in no case shall the total yearly
compensation of directors, as such directors, exceed ten percent (10%) of the unrestricted net income after
taxes of the Company of the preceding year.”
The directors receive standard per diems of P20,000 for each board meeting attended. There are no other
arrangements for compensation either by way of payments for committee participation or consulting
contracts. The directors do not have employment contracts. Their term of office is one year. The
stockholders elect the members of the Board of Directors during the Annual Stockholders‟ Meeting.
Key Officers
The total annual compensation (salary and other variable pay) of the CEO and other key officers of the
Company amounted to P17 million in 2009 and P36 million in 2010. The projected total annual
compensation for 2011 is P56 million.
48
The following table below sets forth the aggregate amount of compensation paid in 2010 and 2009 and
estimated amount of compensation expected to be paid in 2011 to the President and CEO and other key
officers and all officers and directors, as a group:
Name and Principal Position Year Salary(1) Other Variable Pay(2)
(in P millions)
Ramoncito S. Fernandez President and Chief Executive Officer
Christopher Daniel C. Lizo
Chief Finance Officer
Rodrigo E. Franco
President and Chief Executive Officer (MNTC)
President and CEO and two most highly compensated key officers Actual 2009 P 12 P5
Actual 2010 24 12
Projected 2011 33 23
All key officers and directors as a group, unnamed Actual 2009 P22 P6
Actual 2010 49 27
Projected 2011 74 52
(1) Basic monthly salary
(2) Includes directors’ per diem, 13th month and variable pay. Variable pay is based on an annual incentive system that encourages and
rewards individual performance and is tied to the achievement of the company’s annual goals and objectives.
The executive officers are covered by standard employment contracts and employees‟ retirement plan and
can be terminated upon appropriate notice. There are no other special arrangements pursuant to which any
director was compensated. There is no compensatory plan or arrangement for the termination, resignation, or
retirement of a member of the Board.
Other Arrangements
Stock Option Plans
MPIC, the majority shareholder of the Company, has granted on July 2, 2010 options in respect of
94,300,000 common shares of MPIC to new directors and senior management officers of MPIC and to
selected management committee members of MPIC subsidiaries (including the Company). The stock
options will expire on July 2, 2015. With respect to the stock options granted to MPIC subsidiaries, said
stock options will vest as follows: 30% on July 2, 2011; 35% on July 2, 2012; and 35% on July 2, 2013. As
of December 31, 2010, the carrying value of the stock options amounted to P1.9 million, see Note 22 –
Retirement Costs and Share-Based Payment to the accompanying consolidated financial statements in Item
7.
There are no arrangements for compensation to be received from the Company in the event of a resignation,
retirement or termination of the executive officer‟s employment or a change of control of the Company,
except for such benefits to which they may be entitled under the Company‟s retirement and incentive plans.
There are no outstanding warrants or stock options held by any of the Company‟s executives.
Item 10. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 2010 the Company knows of no beneficial owner or voting trust holder of 5% or more
among the stockholders, except as set forth below.
The Company is not aware of the existence of any voting trust arrangement among shareholders.
49
Security Ownership of Management as at 31 December 2010:
(1)
Type of
Stock
(2)
Name of record or
beneficial owner
(3)
Citizenship
(4)
Amount and nature
of record/beneficial
ownership
r or
b
(5)
Percent
owner of
class
Common Manuel V. Pangilinan Filipino 1 r 0%
Common Jose Ma. K. Lim Filipino 1 r 0%
Common David J. Nicol British 1 r 0%
Common Ramoncito S. Fernandez Filipino 1 r 0%
Common Christopher C. Lizo Filipino 1 r 0%
Common Rodrigo E. Franco Filipino 1 r 0%
Common Albert F. Del Rosario Filipino 1 r 0%
Common Artemio V. Panganiban Filipino 1 r 0%
Common Felipe M. Medalla Filipino 1 r 0%
Common Arlyn S. Villanueva Filipino 1 r 0%
Change in Control
There has been no change in control in respect of MPTC since the beginning of 2009. MPTC is not aware of
any existing or pending transaction which may result in such a change in control.
Item 11. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related Party Transactions
For a detailed discussion of our material related party transactions, see Note 18 –Related Party Transactions
to the accompanying consolidated financial statements in Item 7.
Except for the transactions discussed in Note 18 – Related Party Transactions to the accompanying
consolidated financial statements in Item 7, there were no other material related party transactions during the
last three financial years, nor are there any material transactions currently proposed between MPTC and any
(i) any director, officer, direct or indirect owner of 10% or more of the outstanding shares in MPTC; (ii) any
close family member of such director, officer or owner; (iii) associates of MPTC; (iv) enterprises
controlling, controlled by or under common control with MPTC; or (v) enterprises in which a substantial
interest in the voting power is owned, directly or indirectly, by any director, officer or owner of 10% or
more of the outstanding shares in MPTC or any close family member of such director, key officer or owner,
or collectively, the Related Parties.
There was no outstanding indebtedness at any time during the last three financial years that was owed to
MPTC and/or its subsidiaries by any Related Party.
No person who is not an executive officer is expected by MPTC to make a significant financial contribution
to the business.
No director has resigned or declined to stand for re-election to the Board of Directors since the date of the
last annual meeting of MPTC because of a disagreement with MPTC on matters relating to the Company‟s
operations, policies and practices.
The company has engaged the services of the law firm of Picazo Fider Santos for legal services. The
Company‟s Corporate Secretary, Erlito S. Fider, is a senior partner of Picazo.
50
Part IV – CORPORATE GOVERNANCE
Item 12. CORPORATE GOVERNANCE
MPTC recognizes the value of good corporate governance in building and sustaining its long-term growth
and profitability. The Company believes that the practice of corporate governance moves beyond mere
compliance with rules and legislation, through a process of developing the proper competencies in order to
establish an ethical corporate culture of principled business within the framework of its core values of
accountability, integrity, fairness and transparency.
At every level of an organization, from a director to an employee, is responsible for creating this desired
culture. Everyone must share in contributing to the adoption of appropriate policies and the latter‟s firm, yet
even-handed enforcement. Furthermore, everyone is charged with the duty of promoting the proper attitudes
and mindsets to allow genuinely good corporate governance to take root and flourish in MPTC.
MPTC‟s corporate governance program is made necessary by very weighty reasons. First, as an investee
company of Philippine and other affiliates of First Pacific, MPTC also endeavors to comply with certain
corporate governance guidelines of First Pacific which are based on the rules of the Hong Kong Stock
Exchange in which First Pacific‟s shares are listed. Second, MPTC recognizes the reputational and
commercial benefits of good corporate governance, a fact that is supported by recent developments in the
world economy.
Ultimately however, the most important reason for embarking on a corporate governance program is that
MPTC considers it to be a duty that all corporate citizens should fulfill. It is a duty to be taken seriously, a
duty that a company owes to all of our stakeholders: shareholders, employees, customers, partners,
suppliers, contractors, and the community at large.
Policies
The Corporate Governance Manual or Governance Manual, which was adopted and approved by the Board
of Directors on September 2002, and was revised and amended on February 23, 2011, seeks to
institutionalize the principles of good governance that the Board of Directors and management believe to be
a necessary component of sound business management. It was adopted pursuant to the Code of Corporate
Governance, or the Philippine SEC Governance Code, that was promulgated by the Philippine SEC, under
SEC Memorandum Circular No. 2, Series of 2002, dated April 5, 2002.
In compliance with the Philippine SEC Governance Code and consistent with the relevant provisions of the
Securities Regulation Code and Corporation Code of the Philippines, the Governance Manual covers the
following key areas:
1. The qualifications and grounds for disqualification for directorship;
2. The requirement that at least two or 20% of the members of the Board of Directors, whichever
is lesser, must be independent directors and the standards/criteria for the determination of
independent directors;
3. The duties and responsibilities of the Board of Directors and the individual directors;
4. The Board committees, specifically, the nomination committee, audit committee and
compensation and remuneration committee, the composition and the principal duties and
responsibilities of such committees and grounds for permanent and temporary disqualification;
5. The role of our chairman in ensuring compliance with the corporate governance principles;
6. The role of our president/chief executive officer in ensuring that our organizational and
procedural controls are adequate and effective to ensure reliability and integrity of financial and
operational information, effectiveness and efficiency of operations, safeguarding of assets and
compliance with laws, rules, regulations and contracts;
7. The duties and responsibilities of the corporate secretary/assistant corporate secretary in terms
of the support services that they need to provide the Board in upholding sound corporate
governance;
8. The duties and responsibilities of the head of the internal audit organization that would provide
the board of directors, management and shareholders with reasonable assurance that the key
51
organizational and procedural controls are appropriate, adequate, effective and reasonably
complied with;
9. The functions of the independent auditors that would reasonably ensure an environment of
sound corporate governance as reflected in the financial records and reports; the requirement
that non-audit work of the independent auditors should not conflict with their function as
independent auditors; the requirement to rotate, at least once every five years, the independent
auditors or the lead partner assigned to handle the independent audit of the financial statements;
10. The commitment to respect and promote shareholders‟ rights such as voting right, pre-emptive
right, inspection right, dividend right, appraisal right, and right to receive information about the
background, business experience, compensation and shareholdings of the directors and officers
and their transactions with us;
11. The requirement to appoint a compliance officer and the duties and responsibilities of such
compliance officer including the establishment of an evaluation system to determine and
measure compliance with the provisions of the Governance Manual; and
12. The penalties for violations of the Governance Manual.
The Code of Business Conduct and Ethics was adopted to strengthen the implementation of the Governance
Manual. Approved by the Board on February 23, 2011, the Code of Business Conduct and Ethics sets out
the business principles and values, which aim to promote a culture of good corporate governance in the
Company. It provides standards that govern and guide all business relationships of MPTC, its directors,
officers and employees, especially with respect to the following:
1. Compliance with applicable laws, rules and regulations;
2. Ethical handling of conflicts of interest, corporate opportunities and confidential information;
3. Protection and proper use of company assets;
4. Fair dealing with our employees, customers, service providers, suppliers and competitors;
5. Compliance with our reporting and disclosure obligations to the relevant regulators and to
investors;
6. Compliance with our disclosure and financial reporting controls and procedures;
7. Assessment and management of risks involved in our business endeavors; and
8. Adoption of international best practices of good corporate governance in the conduct of our
business.
In addition, the Conflict on Interest Policy was adopted by our Board of Directors to provide specific
guidelines on the provisions of the Code of Business Conduct and Ethics. Approved on February 23, 2011,
this Policy aims to ensure that work-related actions of the directors, officers, employees and consultants are
based on sound business principles and judgment devoid of bias or partiality. It enjoins all employees to be
aware of the possibility of such bias and partiality in dealings with various entities or individuals in the
course of or in relation to their work. The policy likewise mandates that employees who find themselves in a
possible conflict of interest situation should promptly disclose the matter to the relevant authorities, as stated
in the policy. If warranted, the employee concerned should also obtain appropriate approvals and inhibit
himself from any action, transaction or decision involving and existing or potential conflict of interest
All these policies and rules (collectively, the Corporate Governance or CG Rules) shall be periodically
reviewed to ensure that they are appropriate for MPTC and are compliant with the requirements of the
Philippine SEC and Hongkong Stock Exchange corporate governance rules, as may be applicable.
Enterprise Risk Management
Moreover, the Company plans to adopt an expanded corporate governance approach in managing business
risks. An Enterprise Risk Management Policy is being developed to provide a better understanding of the
different risks that could threaten the achievement of the Company‟s vision, mission, strategies and goals.
The policy also highlights the vital role that each individual plays in the organization – from top
52
management to the staff including subsidiaries and affiliates –in managing risks and in ensuring that the
Company‟s business objectives are attained.
In 2011, MPTC seeks to reinforce its commitment to strengthening its enterprise-wide risk management
mandate by institutionalizing the Group‟s Enterprise Risk Management (ERM). The ERM shall promulgate,
encourage and practice an integrated risk management framework for the organization, focusing on ensuring
critical risks are identified, evaluated, treated and monitored across all functions and units within the MPTC
Group.
The Company‟s vision for its ERM is to cultivate a risk-conscious culture within the organization that
recognizes not only the defensive nature of risk management but also the opportunity-creating value of risk.
New initiatives shall be pursued to develop and adopt corporate governance best practices, and to build the
right corporate culture across the organization. The Company plans to significantly improve its self-rating
on the Corporate Governance Scorecard spearheaded by the Institute of Corporate Directors and comply
with the Corporate Governance Guidelines set out by the Philippine Stock Exchange. The Board and top
management‟s capability and expertise in corporate governance shall be strengthened through participation
in available external training and workshops so that more sound and informed decisions would be
formulated by the Board in enhancing the Company‟s corporate governance.
Implementing Structures
Board of Directors
Key Roles
The Board of Directors is the highest authority in matters of governance. The Board establishes the vision,
mission, and strategic direction of the Company, monitors over-all corporate performance, and protects the
long-term interests of the various stakeholders by ensuring transparency, accountability, and fairness. The
Board exercises an oversight role over the risk management function while ensuring the adequacy of internal
control mechanisms, reliability of financial reporting, and compliance with applicable laws and regulations.
In addition, certain matters are reserved specifically for the Board‟s disposition, including the approval of
corporate operating and capital budgets, major acquisitions and disposals of assets, major investments, and
changes in authority and approval limits.
Composition
The Board is composed of eleven (11) highly competent individuals with diverse yet complementary skills
and expertise, duly elected by stockholders during the Annual General Meeting of stockholders (AGM).
They bring together immense value in terms of experience in running and directing various businesses and
organizations. This expertise is applied in good measure to the pursuit of MPTC‟s continued growth and
profitability. Such a commitment requires, as well, a keen observance of corporate governance principles
and policies adopted to ensure the objective performance of its oversight functions over management.
Chief among the requirements for the smooth performance of its oversight function is that of board
independence. MPTC has three (3) duly-screened and qualified independent directors, namely: Former Chief
Justice Artemio V. Panganiban, Dr. Felipe Medalla and Dr. Arlyn Sicangco-Villanueva. These three
independent directors comprise twenty seven percent (27%) of the entire membership of the MPTC Board.
This number surpasses the required number of independent directors under local regulations of at least two
(2) independent directors or twenty percent (20%) of the entire Board membership, whichever is lower.
To further enhance board independence, MPTC maintains the practice of keeping the posts of chairman of
the board and the president and CEO separate. Each position has been given distinct and separate duties and
responsibilities pursuant to the provisions of MPTC‟s By-Laws and Governance Manual.
53
As of December 31, 2010, the Board is comprised of the following members:
Name Position Nature of Appointment
Mr. Manuel V. Pangilinan Chairman Non-executive
Mr. Jose Ma. K. Lim Director Non-executive
Mr. David J. Nicol Director Non-executive
Mr. Ramoncito S. Fernandez Director, President and Chief Executive
Executive Officer
Mr. Christopher Daniel C. Lizo Director and Chief Finance Officer Executive
Mr. Rodrigo E. Franco Director Executive
Mr. Albert F. Del Rosario Director Non-executive
Mr. Artemio V. Panganiban Independent Director Non-executive / Independent
Mr. Felipe M. Medalla Independent Director Non-executive / Independent
Ms. Arlyn Sicangco-Villanueva Independent Director Non-executive / Independent
Atty. Alex Erlito S. Fider Director and Corporate Secretary Executive
Board Remuneration
In accordance with the Company‟s By-Laws, the Board members receive remuneration in the form of a
specific sum for attendance at each regular or special meeting of the Board. A per diem of P20,000 per
Board or committee meeting was agreed and approved by the shareholders. The remuneration is intended to
provide a reasonable compensation to the directors in recognition of their responsibilities and the potential
liability they assume as a consequence of the high standard of best practices required of the Board as a body,
and of the directors individually, under the SEC-promulgated Code of Corporate Governance. Also, the
level of per diem is in line with standards currently practiced among publicly listed companies similar to
MPTC.
Board Performance
Directors attend regular meetings of the Board, which are normally held on a bi- monthly basis, as well as
special meetings of the Board, and the AGM. A director must have attended at least 50% of all meetings
held in a year in order to be qualified for re-election in the following year.
The Board met seven (7) times in 2010 and ten (10) times in 2009, including the AGM. The attendance of
the individual directors at these meetings is duly recorded, as follows:
2010 2009
Regular and Special
Meetings
Annual General
Meeting of
Stockholders
Regular and Special
Meetings
Annual General
Meeting of
Stockholders
Present Absent Present Absent Present Absent Present Absent
Manuel V. Pangilinan 5 1 1 0 10 0 1 0
Jose Ma. K. Lim 4 2 0 1 9 1 1 0
Amb. Albert F. del Rosario 6 0 1 0 8 2 0 1
Ramoncito S. Fernandez 6 0 1 0 10 0 1 0
Christopher Daniel C. Lizo 6 0 1 0 10 0 1 0
Rodrigo E. Franco 6 0 1 0 9 1 1 0
Felipe M. Medalla1 5 1 0 0 3 0 1 0
Arlyn Sicangco-Villanueva1 5 1 1 0 3 0 1 0
Alex Erlito S. Fider1 6 0 1 0 3 0 1 0
Artemio V. Panganiban2 2 n/a 1 n/a n/a n/a n/a n/a
David J. Nicol2 1 n/a 0 n/a n/a n/a n/a n/a
Edward S. Go3 n/a n/a n/a n/a 5 1 n/a n/a 1Elected to the Board on July 31, 2009 during the annual stockholders‟ meeting 2Elected to the Board on September 24, 2010 during the annual stockholders‟ meeting 3Term ended on July 31, 2009
The average attendance rate of members of the Board was at 93% for 2008 and 91% for 2010. All directors
have individually complied with the SEC‟s minimum attendance requirement of 50%.
Prior to the Board meetings, all of the directors are provided with board papers which include reports on the
Company‟s strategic, operational, and financial performance and other regulatory matters. The Board also
has access to the Corporate Secretary who, among other functions, oversees the flow of information to the
Board prior to the meetings and who serves as adviser to the directors on their responsibilities and
54
obligations. The members of the Board also have access to management should they need to clarify matters
concerning items submitted for their consideration.
Board Committees
The Board of Directors is authorized under our by-laws to create committees, as it may deem necessary.
There are currently three Board committees, namely, the audit, nomination, and compensation and
remuneration committees, the purpose of which is to assist our Board of Directors.
Audit Committee
Our audit committee is composed of three members, one of whom is an independent director.
As provided for in the audit committee charter, the purpose of the audit committee is to assist our Board of
Directors in fulfilling its oversight responsibility for: (i) MPTC‟s accounting and financial reporting
principles
and policies and internal audit controls and procedures; (ii) the integrity of MPTC‟s financial statements and
the independent audit thereof; (iii) MPTC‟s compliance with legal and regulatory requirements; and (iv) the
performance of the internal audit organization and the external auditors.
To carry its direct responsibility for the appointment, setting of compensation, retention and removal of the
external auditors, the audit committee has the following duties and powers:
Assist the Board in the performance of its oversight responsibility for the financial reporting
process, system of internal control, audit process, and monitoring of compliance with applicable
laws, rules and regulations.
Check all financial reports against its compliance with both the internal financial management
handbook and pertinent accounting standards, including regulatory requirements.
Perform oversight financial management functions specifically in the areas of managing credit,
market, liquidity, operational, legal and other risks of the Company, and crisis management. This
function shall include the regular receipt from Management of information on risk exposures and
risk management activities.
Perform direct interface functions with the internal and external auditors. To ensure that the
internal and external auditors act independently from each other, and that both auditors are given
unrestricted access to all records, properties and personnel in the performance of their respective
audit functions.
Review of the annual audit plan to ensure its conformity with the objectives of the Company. The
plan includes the audit scope, resources and budget necessary to implement it.
Prior to the commencement of the audit, discuss with the external auditor the nature, scope and
expenses of the audit, and ensure proper coordination if more than one audit firm is involved in the
activity to secure proper coverage and minimize duplication of efforts.
Organize an internal audit department, and consider the appointment of an independent internal
auditor and the terms and conditions of its engagement and removal.
Monitor and evaluate the adequacy and effectiveness of the Company's internal control system,
including financial reporting control and information technology security.
Review the reports submitted by the internal and external auditors.
Review the quarterly, half-year and annual financial statements before its submission to the Board,
with particular focus on the following matters:
o Any change/s in accounting policies and practices
o Major judgment areas
o Significant adjustments resulting from the audit
o Going concern assumptions
o Compliance with accounting standards
55
o Compliance with tax, legal and regulatory requirements
Coordinate, monitor and facilitate compliance with laws, rules and regulations.
Elevate to international standards the accounting and auditing processes, practices and
methodologies, and develop the following in relation to this reform:
o A definitive timetable within which the accounting system of the Company will be 100%
Philippine Accounting Standard (PAS) compliant.
o An accountability statement that will specifically identify officers and/or personnel
directly responsible for the accomplishment of such task.
Develop a transparent financial management system that will ensure the integrity of internal control
activities throughout the Company through a step-by-step procedures and policies handbook that
will be used by the entire Company.
Coordinate, monitor and facilitate compliance with laws, rules and regulations.
Evaluate and determine non-audit work, if any, of the external auditor, and review periodically the
non-audit fees paid to the external auditor in relation to their significance to the total annual income
of the external auditor and to the Company's overall consultancy expenses. To disallow any non-
audit work that will conflict with external auditor's duties and poses a threat to his independence.
Non-audit works, if allowed, are disclosed in the Company's annual report.
Establish and identify reporting line of the Chief Audit Executive to properly enable him to fulfill
his duties and responsibilities. The Chief Audit Executive shall functionally report directly to the
Audit Committee.
To ensure that the performance of the work of Chief Audit Executive is free from interference by
outside parties.
The audit committee also has the authority to retain or obtain advice from special counsel or other experts or
consultants in the discharge of their responsibilities without the need for Board approval.
Audit Committee Report
The Audit Committee meets at least once every year and invites non-members, including the President &
CEO, Chief Finance Officer, independent and internal auditors, and other key persons involved in company
governance, to attend meetings where necessary. During these meetings:
The Committee reviews the financial statements and all related disclosures and reports certified by
the Chief Finance Officer, and released to the public and/or submitted to the Philippine SEC for
compliance with both the internal financial management handbook and pertinent accounting
standards, including regulatory requirements. The Committee, after its review of the annual audited
financial statements of MPTC and its subsidiaries, endorses these to the Board for approval;
The Committee meets with the internal and independent auditors, and discusses the results of their
audits, ensuring that management is taking appropriate corrective actions in a timely manner,
including addressing internal controls and compliance issues;
The Committee reviews the performance and recommends the appointment, retention or discharge
of the independent auditors, including the fixing of their remuneration, to the full Board. On an
annual basis, the Committee also assesses the independent auditor‟s qualifications, skills, resources,
effectiveness and independence. The Committee also reviews and approves the proportion of audit
and non-audit work both in relation to their significance to the auditor and in relation to the
Company‟s total expenditure on consultancy, to ensure that non-audit work will not be in conflict
with the audit functions of the independent auditor;
The Committee reviews the plans, activities, staffing and organizational structure and assesses the
effectiveness of the internal audit function, including conformance with international standards;
The Committee provides oversight of the financial reporting and operational risks, specifically on
financial statements, internal controls, legal or regulatory compliance, corporate governance, risk
56
management and fraud risks. The Committee also reviews the results of management‟s annual risk
assessment exercise;
To ensure compliance with regulatory requirements and assess the appropriateness of the existing Charter
for enabling good corporate governance, the Committee also reviews and assesses the adequacy of its
Charter annually, seeking Board approval for any amendments.
Nomination Committee
The nomination committee is composed of three voting members, all of whom are regular members of our
Board of Directors and one of whom must be independent, and one non-voting member in the person of the
HR Director/Manager.
The principal functions and responsibilities of the nomination committee are:
to review and evaluate the qualifications of all persons nominated to the Board and other
appointments that require Board approval;
to assess the effectiveness of the Board‟s processes and procedures in the election or replacement
of directors.
to pre-screen and shortlist all candidates nominated to become a member of the Board of Directors
in accordance with the qualifications and disqualifications set forth in the Company‟s Manual on
Corporate Governance
Compensation and Remuneration Committee
The compensation and remuneration committee is composed of three voting members, all of whom are
regular members of our Board of Directors and one of whom must be independent.
The principal functions and responsibilities of the compensation and remuneration committee are:
to establish a formal and transparent procedure for developing a policy on executive remuneration
and for fixing the remuneration packages of Directors, and provide oversight over remuneration of
senior management and other key personnel ensuring that compensation is consistent with the
Company's culture, strategy and control environment;
to designate amount of remuneration, which shall be in a sufficient level to attract and retain
directors and officers who are needed to run the Company successfully;
to establish a formal and transparent procedure for developing a policy on executive remuneration
and for fixing the remuneration packages of individual directors, if any, and officers;
to develop a form on Full Business Interest Disclosure as part of the pre-employment requirements
for all incoming officers, which among others compel all officers to declare under the penalty of
perjury all their existing business interests or shareholdings that may directly or indirectly conflict
in their performance of duties once hired;
to disallow any director to decide his or her own remuneration;
to provide in the Company's annual reports, information and proxy statements a clear, concise and
understandable disclosure of all fixed and variable compensation paid, directly or indirectly, to its
executive officers, directors and management officers for the previous fiscal year and the ensuing
year;
to review the existing Human Resources Development Handbook, to strengthen provisions on
conflict of interest, salaries and benefits policies, promotion and career advancement directives and
compliance of personnel concerned with all statutory requirements that must be periodically met in
their respective posts;
57
The members of each Board committee are set forth below:
Compensation and Remuneration
Audit Committee Nomination Committee Committee
Dr. Felipe M. Medalla Manuel V. Pangilinan Manuel V. Pangilinan (Chairman) (Chairman) (Chairman) Jose Ma. K. Lim Jose Ma. K. Lim Jose Ma. K. Lim
Amb. Albert F. del Rosario Chief Justice Artemio V. Panganiban Dr. Arlyn Sicangco-Villanueva (Members) (Members) (Members)
Management
The President and CEO, guided by the Company‟s vision, mission, and values statements, is accountable to
the Board for the development and recommendation of strategies, and the execution of the defined strategic
imperatives. The President and CEO is assisted by the heads of each of the major business units and support
groups in the subsidiaries and affiliates.
The President and CEO, together with the Chief Finance Officer, oversees the Company‟s strategy
management processes from strategy formulation, translation to executable plans, horizontal alignment of
business objectives across the organization, to execution and performance tracking linked to the Company‟s
rewards system.
Every year, the Company reviews and formulates its strategic priorities which then guide the formulation of
the key business strategies and goals for the year. Each business group in subsidiaries and affiliates
identifies financial and non-financial objectives, and sets targets and initiatives to achieve them. This is
captured in what is called the groups‟ Wildly Important Goals (WIGs). To ensure line of sight, the group
WIGs are cascaded to all employees, making sure that everyone understands and appreciates their
contribution to the group goals. This helps in developing individual performance plans that are aligned with
the key strategies. Rewards and incentives are given based on the achievement of the committed group and
individual targets.
Key programs, projects, and major organizational initiatives are taken up at the Management Committee
(Mancom), composed of the President and CEO, as well as the heads of each of the major business units and
support groups. All budgets and major capital expenditures must be approved by the Mancom prior to
endorsement to the Board for approval. The Mancom of subsidiaries and affiliates meets at least once a
week. A joint Mancom meeting is held once every quarter.
Management is mandated to provide complete and accurate information on the operations and affairs of the
Company in a timely manner. Management is also required to prepare financial statements for each
preceding financial year in accordance with Philippine Financial Reporting Standards (PFRS).
Management‟s statement of responsibility with regards to the Company‟s financial statements is included in
the annual report.
Internal Audit Organization
An internal audit organization was established to determine whether the Company‟s risk management,
control and governance processes are adequate and functioning by ensuring that:
1. Risks are appropriately identified and managed;
2. Significant financial, managerial, and operating information are accurate, reliable and timely;
3. Employees‟ actions are in compliance with policies, standards, procedures, and applicable laws
and regulations;
4. Resources are acquired economically, used efficiently and adequately protected;
5. Programs, plans and objectives are achieved;
6. Quality and continuous improvement are fostered in our control process;
7. Significant legislative or regulatory issues impacting us are recognized and addressed
appropriately; and
8. Interaction with various governance groups occurs as needed.
58
To ensure independence, the Chief Audit Executive, head of the internal audit organization, reports
functionally to our audit committee and administratively to our president and chief executive officer. He is
accountable to management and our audit committee in the discharge of his duties and is required to:
1. Provide annually an assessment on the adequacy and effectiveness of our processes for
controlling our activities and managing our risks;
2. Report significant issues related to the processes of controlling our activities, including potential
improvements to those processes, and provide information concerning such issues;
3. Periodically provide information on the status and results of the annual audit plan and the
sufficiency of our internal audit organization‟s resources; and
4. Coordinate with and provide oversight of other control and monitoring functions (risk
management, compliance, security, legal, ethics, environmental, and external audit).
The internal audit organization has a charter that has been approved by the audit committee. It seeks to
comply with the Standards for the Professional Practice of Internal Auditing of The Institute of Internal
Auditors in the discharge of its scope of work and responsibilities.
Ownership Structure
MPTC regularly discloses the top 20 shareholders of the common and preferred equity securities of the
Company. Disclosure is also made of the security ownership of certain record and beneficial owners who
hold more than 5% of the Company‟s common and preferred shares. Finally, the shareholdings and
percentage ownership of the directors and key officers are disclosed in the Definitive Information Statement
sent to the shareholders prior to the AGM.
Below is a breakdown of MPTC‟s shareholding structure as of December 31, 2010:
Stockholder Common Shares %
Metro Pacific Investments Corporation 4,970,570,627 99.85
Public 7,484,161 0.15
TOTAL 4,978,054,788 100.00
The Company is currently evaluating the timing and the extent of additional shares to be issued available for
the public to acquire. During the AGM last September 24, 2010, the stockholders and BOD approved the
increase in authorized capital stock from P5,400 million divided into 5,400,000,000 common shares each
with a par value of P1.00 to up to P10,000 million divided into to 10,000,000,000.00 common shares with a
par value of P1.00 per share and up to 5,100,000,000 preferred shares with a par value of P0.01 per share.
Item 13. INFORMATION ON INDEPENDENT AUDITORS AND OTHER RELATED MATTERS
The Company engages the services of independent auditors to conduct an audit and obtain reasonable
assurance on whether the financial statements and relevant disclosures are free from material misstatements.
The independent auditors are directly responsible to the Audit Committee in helping ensure the integrity of
the Company‟s financial statements and reporting process.
The appointment of the independent auditors is submitted to the shareholders for approval at the AGM. The
representatives of the independent auditors are expected to be present at the AGM and have the opportunity
to make a statement on the Company‟s financial statements and results of operations if they desire to do so.
The auditors are also expected to be available to respond to appropriate questions during the meeting.
SyCip, Gorres, Velayo & Company (SGV & Co.) is the appointed principal accountant and external auditor
for MPTC in accordance with regulations issued by the SEC, the audit partner principally handling the
Company‟s account is rotated every five (5) years or sooner.
59
There were no disagreements with the Company‟s independent auditors on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or procedure.
Fees approved in connection with the audit and audit-related services rendered by SGV & Co., pursuant to
the regulatory and statutory requirements amounted to P1.3 million for the year ended 31 December 2010 as
compared to P1.9 million for 2009.
In addition to performing the audit MPTC‟s financial statements, SGV & Co. was also selected, in
accordance with established procurement policies, to provide other services in 2010 and 2009.
The Audit Committee has an existing policy to review and to pre-approve the audit and non-audit services
rendered by the Company‟s independent auditors. It does not allow MPTC to engage the independent
auditors for certain non-audit services expressly prohibited by SEC regulations to be performed by an
independent auditor for its audit clients. This is to ensure that the independent auditors maintain the highest
level of independence from the Company, both in fact and appearance.
The Audit Committee has reviewed the nature of non-audit services rendered by SGV & Co. and the
corresponding fees and concluded that these are not significant to impair the independence of the auditors.
Independent Auditor’s Fees and Services
The following table summarizes the fees paid or accrued for services rendered by our independent auditor
for the fiscal years ended December 31, 2010 and 2009:
2010 2009
(in thousands)
Audit Fees P800 P605
All Other Fees 476 1,280
Total P1,276 P1,885
Audit Fees. This category includes the audit of our annual financial statements, review of interim financial
statements and services that are normally provided by the independent auditor in connection with statutory
and regulatory filings or engagements for those fiscal years. This category also includes advice on audit and
accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.
All Other Fees. This category consists primarily of fees with respect to other services rendered for tax
planning and preparation of standard reporting requirements in the First Pacific Group.
Our Audit Committee pre-approved all audit and non-audit services as these are proposed or endorsed before
these services are performed by our independent auditor.
Changes in and Disagreements with Independent Auditors on Accounting and Financial Disclosure
We have no disagreements with our independent auditor on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
60
Part IV -- EXHIBITS AND SCHEDULES
Item 14. EXHIBITS AND REPORTS ON SEC FORM 17-C (CURRENT REPORT)
Exhibits
Description of Exhibit Remarks/Attachment
Statement of Management‟s Responsibility
Report of Auditors and Consolidated Financial Statements and Notes to
Consolidated Financial Statements
Independent Auditors‟ Report on the Supplementary Schedules
Short Term Investments
Amounts Receivable from Directors, Officers, Employees, Related Parties
and Principal Stockholders Other Than Affiliates
Long-Term Investments in Securities (Non-current Marketable Securities,
Other Long Term Investments in Stocks and Other Investments)
Deferred Charges and Others
Long Term Debt
Indebtedness to Related Parties (Other Long term Liabilities)
Plan of Acquisition, Reorganization, Arrangements, Liquidation or
Succession *
Instruments Defining the Rights of Security Holders, Including Indentures *
Voting Trust Agreement *
Material Contracts *
Schedule of Unappropriated Retained Earnings as of 12/31/2010
Letter re: Director Resignation *
Report Furnished to Security Holders *
Subsidiaries to Registrant *
Published Report Regarding Matters Submitted to a Vote of Security Holders *
Consent of Experts and Independent Counsel *
Power of Attorney *
Note: * The exhibits are either Not Applicable to the Company or require No Answer..
61
Reports on SEC Form 17-C
The Company regularly files various reports on SEC Form 17-C relative to various company disclosures. Of
these, the more significant ones are as follows:
Date Title
January 20, 2010 Certification on Compliance with Code of Corporate Governance
February 18, 2010 Approval of 2009 Audited Financial Statements and Announcement
of 2009 Full Year Results
May 8, 2010 Acknowledgement by DPWH of MPTDC‟s Unsolicited Proposal
for
the Connector Road Project
August 24, 2010 Declaration of Cash Dividends and Acquisition of Shares in MSIHI
September 24, 2010 Results of MPTC‟s Annual General Meeting of Stockholders
November 2, 2010 Approval of 2010 Consolidated Budget
November 23, 2010 Concession Agreement between MNTC and BCDA for SCTEX
January 4, 2011 Disclosure on Acquisition of Shares in MSIHI
February 2, 2011 Certification of Independent Director (Artemio V. Panganiban)
February 28, 2011 Approval of 2010 Audited Financial Statements and Declaration of
Cash Dividends
62
1
2
*SGVMC214089*
4 0 5 9 0 SEC Registration Number
M E T R O P A C I F I C T O L L W A Y S C O R P O R A T I O N ( A S u b s i d i a r y o f M e t r o P a c i f i c I n v e s t m e n t s C o r p o r a t i o n ) A N D S U B S I D I A R I E S
(Company’s Full Name)
1 0 t h F l o o r , M G O B u i l d i n g , L e g a s p i C o r n e r D e l a R o s a S t r e e t s , L e g a s p i V i l l a g e , M a k a t i C i t y
(Business Address: No. Street City/Town/Province)
Mr. Christopher Daniel C. Lizo (632) 888-0888 (Contract Person) (Company Telephone Number)
1 2 3 1 A A C F S 0 9 2 4 Month Day (Form Type) Month Day
(Fiscal Year) (Annual Meeting)
– (Secondary License Type, If Applicable)
– VI Dept. Requiring this Doc. Amended Articles Number/Section Total Amount of Borrowings
252 P=7,870.5 million $37.0 million
Total No. of Stockholders Domestic Foreign
To be accomplished by SEC Personnel concerned0
File Number LCU
Document ID Cashier
S T A M P S Remarks: Please use BLACK ink for scanning purposes.
COVER SHEET
*SGVMC214089*
INDEPENDENT AUDITORS’ REPORT The Stockholders and the Board of Directors Metro Pacific Tollways Corporation 10th Floor, MGO Building Legaspi corner, Dela Rosa Streets Legaspi Village, Makati City We have audited the accompanying consolidated financial statements of Metro Pacific Tollways Corporation (a subsidiary of Metro Pacific Investments Corporation) and its subsidiaries, which comprise the consolidated balance sheets as at December 31, 2010 and 2009, and the consolidated statements of income, statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the three years in the period ended December 31, 2010, and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Philippine Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
SyCip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Philippines
Phone: (632) 891 0307 Fax: (632) 819 0872 www.sgv.com.ph BOA/PRC Reg. No. 0001 SEC Accreditation No. 0012-FR-2
A member firm of Ernst & Young Global Limited
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Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Metro Pacific Tollways Corporation and its subsidiaries as of December 31, 2010 and 2009, and their financial performance and their cash flows for each of the three years in the period ended December 31, 2010 in accordance with Philippine Financial Reporting Standards. SYCIP GORRES VELAYO & CO. Marydith C. Miguel Partner CPA Certificate No. 65556 SEC Accreditation No. 0087-AR-2 Tax Identification No. 102-092-270 BIR Accreditation No. 08-001998-55-2009, June 1, 2009, Valid until May 31, 2012 PTR No. 2641544, January 3, 2011, Makati City February 23, 2011
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METRO PACIFIC TOLLWAYS CORPORATION (A Subsidiary of Metro Pacific Investments Corporation) AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31 2010 2009
ASSETS
Current Assets Cash and cash equivalents (Notes 8, 17 and 30) P=1,874,116,857 P=1,520,056,575 Receivables - net (Notes 9 and 30) 56,939,837 29,756,940 Inventories - at cost (Note 18) 37,890,029 36,747,518 Advances to contractors and consultants (Notes 18 and 28) 8,061,415 255,544,962 Due from related parties (Notes 18 and 30) 532,488,688 539,878,935 Derivative assets (Note 30) 2,901,514 – Available-for-sale financial assets (Notes 13 and 30) 51,812,500 – Other current assets (Notes 17 and 30) 74,379,674 72,998,019 Total Current Assets 2,638,590,514 2,454,982,949
Noncurrent Assets Due from related parties (Notes 18 and 30) 65,413,467 65,569,017 Investment in an associate (Notes 10 and 18) 140,711,492 124,783,272 Property and equipment - net (Notes 11 and 17) 116,513,288 113,508,414 Service concession assets - net (Notes 12 and 17) 15,817,859,863 15,123,975,760 Available-for-sale financial assets (Notes 13 and 30) 513,233,509 – Investment in bonds (Notes 13, 17 and 30) – 400,600,000 Derivative assets (Note 30) – 39,211,764 Input value-added tax - net (Notes 5 and 32) – – Other noncurrent assets (Notes 14 and 30) 36,809,879 19,203,371 Total Noncurrent Assets 16,690,541,498 15,886,851,598
P=19,329,132,012 P=18,341,834,547
LIABILITIES AND EQUITY
Current Liabilities Accounts payable and other current liabilities (Notes 15 and 30) P=285,762,435 P=285,874,451 Due to related parties (Notes 18 and 30) 329,775,767 327,585,036 Unearned toll revenue 30,985,896 21,134,973 Dividends payable (Notes 18, 19 and 30) 181,981,147 143,883,011 Income tax payable 18,054,662 10,817,495 Provisions (Note 16) 118,190,989 39,317,102 Derivative liabilities (Note 30) 211,912,455 – Current portion of long-term debt (Notes 8, 11, 12, 17 and 30) 2,176,378,648 579,529,269 Total Current Liabilities 3,353,041,999 1,408,141,337
(Forward)
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Noncurrent Liabilities Long-term debt - net of current portion (Notes 8, 11, 12, 17 and 30) P=7,177,953,827 P=7,787,885,837 Accrued retirement costs (Note 22) 873,614 9,612,991 Financial guarantee obligation (Notes 18 and 30) 65,413,467 65,569,017 Provisions (Note 16) 308,342,672 415,827,304 Deferred tax liabilities - net (Note 26) 322,154,388 285,080,565 Derivative liabilities (Note 30) – 44,467,365 Total Noncurrent Liabilities 7,874,737,968 8,608,443,079
Equity (Note 19) Capital stock 5,065,198,859 5,065,198,859 Equity adjustment on reverse acquisition (581,085,463) (581,085,463) Retained earnings 1,605,119,088 1,800,336,276 Treasury shares (193,597,437) (193,597,437) Other comprehensive income reserve (Notes 13 and 30) 9,402,019 (6,930,220) Other reserves (Note 22) 1,949,447 – Total Equity Attributable to Equity Holders of Parent 5,906,986,513 6,083,922,015 Non-controlling interests 2,194,365,532 2,241,328,116 Total Equity 8,101,352,045 8,325,250,131
P=19,329,132,012 P=18,341,834,547 See accompanying Notes to Consolidated Financial Statements.
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METRO PACIFIC TOLLWAYS CORPORATION (A Subsidiary of Metro Pacific Investments Corporation) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31 2010 2009 2008
OPERATING REVENUES Toll fees P=5,857,950,486 P=5,487,387,690 P=5,194,698,771 Sales of transponders and magnetic cards 543,900 1,802,698 3,165,900 5,858,494,386 5,489,190,388 5,197,864,671
COST OF SERVICES (Notes 16, 18 and 20) (2,583,582,753) (2,622,865,636) (2,642,067,336)
GROSS PROFIT 3,274,911,633 2,866,324,752 2,555,797,335
GENERAL AND ADMINISTRATIVE EXPENSES (Notes 16, 18 and 21) (990,596,383) (1,734,691,890) (517,938,114)
CONSTRUCTION REVENUE (Notes 5 and 12) 1,253,064,438 319,819,424 56,043,292
CONSTRUCTION COSTS (Notes 5 and 12) (1,253,064,438) (319,819,424) (56,043,292)
INTEREST EXPENSE AND OTHER FINANCE COSTS (Notes 16, 17, 18 and 24) (1,110,673,453) (959,810,696) (903,972,873)
EQUITY IN NET EARNINGS OF AN ASSOCIATE (Note 10) 162,668,220 173,951,776 113,164,238
FOREIGN EXCHANGE GAIN (LOSS) - Net 111,910,835 8,895,157 (398,689,136)
INTEREST INCOME (Notes 18 and 23) 109,499,696 86,252,406 110,065,923
OTHER INCOME (Notes 18, 19, 25 and 30) 174,976,962 292,355,181 105,444,839
OTHER EXPENSE (Notes 17, 25 and 30) (227,517,489) (29,115,085) –
INCOME BEFORE INCOME TAX 1,505,180,021 704,161,601 1,063,872,212
PROVISION FOR (BENEFIT FROM) INCOME TAX (Note 26)
Current 51,837,904 46,787,153 17,355,774 Deferred 26,642,331 (8,610,306) (62,316,319) 78,480,235 38,176,847 (44,960,545)
NET INCOME P=1,426,699,786 P=665,984,754 P=1,108,832,757
Attributable To Equity holders of the Parent P=996,491,029 P=581,651,736 P=783,928,412 Non-controlling interests 430,208,757 84,333,018 324,904,345
P=1,426,699,786 P=665,984,754 P=1,108,832,757
Basic/Diluted Earnings Per Share Attributable to Equity Holders of the Parent (Note 27) P=0.20 P=0.12 P=0.16
See accompanying Notes to Consolidated Financial Statements.
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METRO PACIFIC TOLLWAYS CORPORATION (A Subsidiary of Metro Pacific Investments Corporation) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years ended December 31 2010 2009 2008
NET INCOME P=1,426,699,786 P=665,984,754 P=1,108,832,757
OTHER COMPREHENSIVE INCOME (LOSS)
Net gain (loss) on cash flow hedges (Note 30) 11,278,639 36,104,824 (50,859,390) Income tax effect (3,383,592) (10,831,447) 15,257,817 7,895,047 25,273,377 (35,601,573) Gain on fair value change in available-for-sale
financial assets (Note 13) 23,493,000 – – Income tax effect (7,047,900) – – 16,445,100 – –
TOTAL OTHER COMPREHENSIVE INCOME 24,340,147 25,273,377 (35,601,573)
TOTAL COMPREHENSIVE INCOME P=1,451,039,933 P=691,258,131 P=1,073,231,184
Attributable to: Equity holders of the Parent P=1,012,823,268 P=598,610,172 P=760,039,756 Non-controlling interests 438,216,665 92,647,959 313,191,428
P=1,451,039,933 P=691,258,131 P=1,073,231,184 See accompanying Notes to Consolidated Financial Statements.
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METRO PACIFIC TOLLWAYS CORPORATION (A Subsidiary of Metro Pacific Investments Corporation) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Capital Stock
Equity Adjustment on Reverse Acquisition
Retained Earnings Treasury Shares
Other Comprehensive Income Reserve Other Reserves
Total Equity Attributable to Equity Holders
of the Parent Non-controlling
Interests Total Equity At January 1, 2010 P=5,065,198,859 (P=581,085,463) P=1,800,336,276 (P=193,597,437) (P=6,930,220) P=– P=6,083,922,015 P=2,241,328,116 P=8,325,250,131 Cash dividends - P=0.24 per share (Note 19) – – (1,191,708,217) – – – (1,191,708,217) – (1,191,708,217) Cash dividends of a subsidiary - P=93 per share – – – – – – – (543,402,720) (543,402,720) Cost of share-based payment (Note 22) – – – – – 1,949,447 1,949,447 – 1,949,447 Non-controlling interest arising from business combination
(Note 6) – – – – – – – 58,223,471 58,223,471 5,065,198,859 (581,085,463) 608,628,059 (193,597,437) (6,930,220) 1,949,447 4,894,163,245 1,756,148,867 6,650,312,112 Net income – – 996,491,029 – – – 996,491,029 430,208,757 1,426,699,786 Other comprehensive income (Notes 13 and 30) – – – – 16,332,239 – 16,332,239 8,007,908 24,340,147 Total comprehensive income for the year – – 996,491,029 – 16,332,239 – 1,012,823,268 438,216,665 1,451,039,933 At December 31, 2010 P=5,065,198,859 (P=581,085,463) P=1,605,119,088 (P=193,597,437) P=9,402,019 P=1,949,447 P=5,906,986,513 P=2,194,365,532 P=8,101,352,045
At January 1, 2009 P=5,065,198,859 (P=581,085,463) P=1,850,210,105 (P=193,597,437) (P=23,888,656) P=– P=6,116,837,408 P=2,621,966,397 P=8,738,803,805 Cash dividends - P=0.09 per share (Note 19) – – (450,000,000) – – – (450,000,000) – (450,000,000) Scrip dividends (Note 19) – – (181,525,565) – – – (181,525,565) – (181,525,565) Cash dividends of a subsidiary - P=81 per share – – – – – – – (473,286,240) (473,286,240) 5,065,198,859 (581,085,463) 1,218,684,540 (193,597,437) (23,888,656) – 5,485,311,843 2,148,680,157 7,633,992,000 Net income – – 581,651,736 – – – 581,651,736 84,333,018 665,984,754 Other comprehensive income (Note 30) – – – – 16,958,436 – 16,958,436 8,314,941 25,273,377 Total comprehensive income for the year – – 581,651,736 – 16,958,436 – 598,610,172 92,647,959 691,258,131 At December 31, 2009 P=5,065,198,859 (P=581,085,463) P=1,800,336,276 (P=193,597,437) (P=6,930,220) P=– P=6,083,922,015 P=2,241,328,116 P=8,325,250,131
At January 1, 2008 P=5,065,198,859 (P=581,085,463) P=2,570,652,953 P=– P=– P=– P=7,054,766,349 P=2,852,177,689 P=9,906,944,038 Cash dividends - P=0.30 per share (Note 19) – – (1,504,371,260) – – – (1,504,371,260) – (1,504,371,260) Cash dividends of a subsidiary - P=93 per share – – – – – – – (543,402,720) (543,402,720) Redemption of own shares - P=2.22 per share (Note 19) – – – (193,597,437) – – (193,597,437) – (193,597,437) 5,065,198,859 (581,085,463) 1,066,281,693 (193,597,437) – – 5,356,797,652 2,308,774,969 7,665,572,621 Net income – – 783,928,412 – – – 783,928,412 324,904,345 1,108,832,757 Other comprehensive income (loss) (Note 30) – – – – (23,888,656) – (23,888,656) (11,712,917) (35,601,573) Total comprehensive income (loss) for the year – – 783,928,412 – (23,888,656) – 760,039,756 313,191,428 1,073,231,184 At December 31, 2008 P=5,065,198,859 (P=581,085,463) P=1,850,210,105 (P=193,597,437) (P=23,888,656) P=– P=6,116,837,408 P=2,621,966,397 P=8,738,803,805 See accompanying Notes to Consolidated Financial Statements.
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METRO PACIFIC TOLLWAYS CORPORATION (A Subsidiary of Metro Pacific Investments Corporation) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31 2010 2009 2008
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax P=1,505,180,021 P=704,161,601 P=1,063,872,212 Adjustments to reconcile income before tax to
net cash flows: Interest expense and other finance costs
(Note 24) 1,110,673,453 959,810,696 903,972,873 Amortization of service concession assets
(Notes 12 and 20) 559,180,335 505,052,189 553,602,687 Provision for potential losses on input value
added tax (Notes 5 and 21) 334,069,949 1,104,632,613 – Mark-to-market loss (gain) on derivative
assets (Notes 25 and 30) 227,517,489 19,219,364 (46,924,849) Equity in net earnings of an associate
(Note 10) (162,668,220) (173,951,776) (113,164,238) Interest income (Note 23) (109,499,696) (86,252,406) (110,065,923) Unrealized foreign exchange loss (gain) - net (105,215,559) (10,397,342) 335,020,624 Depreciation (Notes 11 and 21) 29,629,639 33,661,057 27,099,763 Movements in: Provisions (28,610,745) 223,276,811 182,162,105 Accrued retirement costs (8,739,377) (4,868,851) (11,323,445) Deferred toll revenue realized (21,134,973) (19,344,465) (26,910,168) Executive stock option plan expense (Note 22) 1,949,447 – – Gain on disposals of property and equipment (1,817,591) (770,138) (101,217) Gain on sale of investment (Notes 19 and 25) – (203,942,145) – Write-off of input value added tax
(Notes 5 and 21) – 94,271,475 – Loss on extinguishment of debt
(Notes 17 and 25) – 9,895,721 – Working capital changes: Decrease (increase) in: Receivables (27,970,214) (11,474,700) (5,190,115) Inventories (1,142,511) 13,888,874 (14,881,582) Due from related parties 7,390,247 (51,549,604) (911,570,129) Advances to contractors and consultants 247,483,547 (245,423,358) 4,614,606 Other current assets (24,022,657) (20,501,257) (3,865,021) Input value added tax (Notes 5 and 12) (334,069,949) (308,809,426) (274,448,428) Increase (decrease) in: Accounts payable and other current
liabilities 11,471,668 69,940,337 (16,736,820) Due to related parties (2,682,964) 23,824,564 11,477,557 Unearned toll revenue 30,985,896 21,134,973 19,344,465 Income tax paid (39,716,249) (37,053,325) (15,652,495) Net cash provided by operating activities 3,198,240,986 2,608,431,482 1,550,332,462
(Forward)
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Years Ended December 31 2010 2009 2008
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease (increase) in: Advances to an associate (Note 18) P=– P=258,396,433 P=32,947,056 Other noncurrent assets (16,145,520) (3,234,940) 972,285 Dividends received (Note 10) 146,740,000 139,840,000 138,000,000 Interest received 99,387,563 69,741,121 88,695,381 Acquisition of: Investment in subsidiary, net of cash acquired
(Note 6) (78,614,048) – – Investment in bonds (Note 13) (300,000,000) (300,000,000) (100,600,000) Additions to: Service concession assets (Note 12) (1,253,064,438) (319,819,424) (56,043,292) Property and equipment (Note 11) (35,857,460) (41,007,923) (24,584,028) Proceeds from: Sale of investment in bonds (Note 13) 300,000,000 – – Sale of property and equipment 5,040,538 3,115,620 1,175,279 Sale of investment (Notes 19 and 25) – 203,942,145 – Net cash provided by (used in) investing activities (1,132,513,365) 10,973,032 80,562,681
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans (Note 17) 1,523,000,000 577,000,000 – Payments of: Dividends to stockholders (Note 19) (1,191,708,217) (1,015,923,222) (1,689,992) Dividends to non-controlling stockholders
(Note 18) (505,304,584) (329,696,640) (543,402,720) Interest (906,488,023) (840,205,172) (817,792,799) Loans (630,365,169) (639,200,046) (558,197,615) Debt issue costs – (6,472,318) – Net cash used in financing activities (1,710,865,993) (2,254,497,398) (1,921,083,126)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (801,346) (1,334,943) 20,704,644
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 354,060,282 363,572,173 (269,483,339)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR (Note 8) 1,520,056,575 1,156,484,402 1,425,967,741
CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 8) P=1,874,116,857 P=1,520,056,575 P=1,156,484,402
See accompanying Notes to Consolidated Financial Statements.
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METRO PACIFIC TOLLWAYS CORPORATION (A Subsidiary of Metro Pacific Investments Corporation) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Corporate Information
General Metro Pacific Tollways Corporation (MPTC or the Parent Company) and its subsidiaries (collectively referred to as “the Company”) were incorporated in the Philippines and registered with the Philippine Securities and Exchange Commission (SEC) on various dates. The primary purpose of MPTC is to acquire by purchase, exchange, assignment, gift or otherwise, and to hold, own and use for investment or otherwise, and to sell, assign, transfer, exchange, lease, develop, mortgage, pledge, traffic, deal in, and with and otherwise operate, manage, enjoy and dispose of, any and all properties of every kind and description and wherever situated, as and to the extent permitted by law. MPTC’s shares of stock are listed in the Philippine Stock Exchange (PSE).
On August 26, 2008, First Philippine Holdings Corporation (FPHC) and Benpres Holdings Corporation (BHC), former shareholders of MPTC, entered into a Share Purchase Agreement (SPA) with Metro Pacific Investments Corporation (MPIC), a publicly-listed Philippine corporation, to sell, assign and transfer to MPIC all of their respective rights, title and interest in and to their shares in MPTC. On November 13, 2008, FPHC and BHC sold their 2,534,991,020 and 2,435,579,607 shares, respectively, to MPIC for a total purchase price of P=12,262.6 million representing 99.8% ownership interest in MPTC.
MPIC is 55.6% owned by Metro Pacific Holdings, Inc. (MPHI). MPHI is a Philippine corporation whose stockholders are Enterprise Investment Holdings, Inc. (EIH) (60.0%), Intalink B.V. (26.7%) and First Pacific International Limited (13.3%). First Pacific Company Limited (FPC), a company incorporated in Bermuda and listed in Hong Kong, through its subsidiaries, hold a direct 40% equity interest in EIH and investment financing, which under Hong Kong Generally Accepted Accounting Principles require FPC to account for the results and assets and liabilities of EIH and its subsidiaries as FPC group companies in Hong Kong. On such basis, FPC is referred as the ultimate parent company of EIH and the Company.
On May 29, 2009, the Board of Directors (BOD) approved the change in number of directors from seven (7) to nine (9) which was approved by the SEC on September 16, 2009.
On September 24, 2010, the BOD approved the following:
a. Increase in the authorized capital stock from 5,400,000,000 common shares to 10,000,000,000 common shares. The approval of the SEC is still pending as of February 23, 2011.
b. Increase in the number of directors from nine (9) to eleven (11) which was approved by the SEC on January 11, 2011.
The registered office address of MPTC is 10th Floor, MGO Building, Legaspi corner Dela Rosa Streets, Legaspi Village, Makati City.
The consolidated financial statements were approved and authorized for issuance by the BOD on February 23, 2011, as reviewed and recommended for approval by the Audit Committee.
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Toll Operations Metro Pacific Tollways Development Corporation (MPTDC) owns 100.0% of Luzon Tollways Corporation (LTC), 67.1% of Manila North Tollways Corporation (MNTC) and 46.0% of Tollways Management Corporation (TMC). MPTDC was the assignee of BHC and FPHC of all their rights, interests and privileges, in relation to the construction, operation and maintenance of the Manila-Subic Expressways under a Memorandum of Understanding (MOU) signed on February 8, 1994 by BHC and FPHC with Philippine National Construction Corporation (PNCC), Subic Bay Metropolitan Authority (SBMA), Bases Conversion and Development Authority (BCDA), and several other governmental and non-governmental entities. The Manila-Subic Expressways shall connect the Subic and Clark Special Economic Zones to Metro Manila.
MPTDC established MNTC jointly with PNCC for the sole purpose of implementing the rehabilitation of the North Luzon Expressway (NLE) and the installation of appropriate collection system therein referred to as the “North Luzon Tollway Project” or the “Project.”
The Project consists of three phases as follows:
Phase I Rehabilitation and expansion of approximately 84 kilometers (km) of the existing NLE and an 8.8-km stretch of a Greenfield expressway
Phase II Construction of the northern parts of the 17-km circumferential road C-5 which connects the current C-5 expressway to the NLE and the 5.85-km road from McArthur to Letre
Phase III Construction of the 57-km Subic arm of the NLE to Subic Expressway
In accordance with the Memorandum of Agreement (MOA) dated March 6, 1995 among MPTDC, SBMA and BCDA, MPTDC undertook the immediate construction of the SBMA - Tipo Road (Segment 7) that connects Tipo in Hermosa, Bataan to Subic. Under the MOA, SBMA authorized MPTDC to charge and collect certain amount of entry fees from the motoring public for the use of Segment 7.
On April 5, 1997, a Provisional Operating and Maintenance Agreement was signed to initiate the collection process in Segment 7 under the terms and conditions of the Supplemental Toll Operation Agreement (STOA) as discussed in Note 2.
Also pursuant to the MOA, Segment 7 was integrated to and formed part of the Joint Venture Agreement (JVA) executed by PNCC and MPTDC. Accordingly, MPTDC executed a Deed of Assignment and Conveyance on July 6, 2001 whereby MPTDC assigned, conveyed and transferred in favor of MNTC all its rights, interests and privileges over Segment 7. On the same date, MPTDC and MNTC entered into an Operation and Maintenance Agreement (S7 O&M) whereby MNTC appointed MPTDC as the Operator of the Segment 7 toll road. On February 10, 2005, pursuant to the Operation and Maintenance Agreement (O&M) between MNTC and TMC, an associate, TMC took over the operation and maintenance of Segment 7 from MPTDC (see Note 18).
The construction of Phase I was substantially completed in January 2005. On January 27, 2005, the Toll Regulatory Board (TRB) issued the Toll Operation Permit (TOP) for the operation and maintenance of Phase I consisting of Segments 1, 2, 3 and including Segment 7 in favor of MNTC. Thereafter, MNTC took over the NLE from PNCC and commenced its tollway operations on February 10, 2005.
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On June 5, 2010, Segment 8.1, a portion of Phase II, which is a 2.7 km-road designed to link Mindanao Avenue to the NLE, had officially commenced tollway operation. The remaining portion of Phase II is under pre-construction works while Phase III of the Project has not yet been started as of February 23, 2011.
On June 5, 2010, the Department of Public Works and Highways (DPWH) accepted MPTDC’s unsolicited proposal for the NLE to South Luzon Expressway (SLEx) Connector Road project (“the Connector Road Project”), subject to submission of requested additional documents and further discussion with DPWH. MPTDC submitted the additional documents and continues to discuss with DPWH and other Philippine government agencies regarding the Connector Road project. Following the submission and acceptance of the unsolicited proposal to DPWH, MPTDC was granted the “original proponent” status for the Connector Road project. The Connector Road project is a 13.5-kilometer elevated toll road which will connect the north to south corridor. As of February 23, 2011, MPTDC continues to discuss with DPWH and other government agencies.
As further discussed in Note 28, MNTC was awarded the right to enter into a concession agreement with the Philippine Government, through BCDA, for the operation and maintenance of the Subic-Clark-Tarlac Expressway (SCTEx).
2. The Supplemental Toll Operation Agreement (STOA) for Manila-North Expressway
PNCC is the franchise holder for the construction, operation and maintenance of toll facilities in the North and South Luzon Tollways and the Metro Manila Expressway by virtue of Presidential Decree (PD) No. 1113 issued on March 31, 1977, as amended by PD No. 1894 issued on December 22, 1983. PNCC has an existing Toll Operation Agreement (TOA) with the Government of the Republic of the Philippines (ROP), by and through the TRB.
Pursuant to the JVA entered into by PNCC and MPTDC on August 29, 1995, PNCC assigned its rights, interests and privileges under its franchise to construct, operate and maintain toll facilities in the NLE in favor of MNTC, including the design, funding and rehabilitation of the NLE, and installation of the appropriate collection system therein. MPTDC in turn assigned all its rights, interests and privileges to the Binictican-Bo. Tipo road project, as defined in the MOU dated March 6, 1995, to MNTC, which assumed all the rights and obligations as a necessary and integral part of the NLE project. The assignment of PNCC’s usufructuary rights, interests and privileges under its franchise, to the extent of the portion pertaining to the NLE, was approved by the then President of the ROP. On October 10, 1995, the Department of Justice issued Opinion No. 102, Series of 1995, affirming the authority of the TRB to grant authority to operate a toll facility and to issue the necessary Toll Operation Certificate (TOC) in favor of PNCC and its joint venture partner, as reiterated and affirmed by the Secretary of Justice in his letter to the Secretary of Public Works and Highways dated November 24, 1995, for the proper and orderly construction, operation and maintenance of the NLE as a toll road during the service concession period.
In April 1998, the ROP (Grantor), acting by and through the TRB, PNCC (Franchisee) and MNTC (Concessionaire) executed the STOA for the Manila-North Expressway, whereby the ROP granted MNTC the rights, obligations and privileges including the authority to finance, design, construct, operate and maintain the project roads as toll roads (the “Concession”) commencing upon the date the STOA comes into effect until December 31, 2030 or 30 years after the issuance of the TOP for the last completed phase, whichever is earlier, unless further extended pursuant to the STOA.
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The PNCC franchise expired on May 1, 2007. Pursuant to the STOA, the TRB issued the necessary TOC for the NLE in order to allow the continuation of the Concession. As further discussed in Note 18, the Company pays a certain amount to PNCC.
Also, under the STOA, MNTC shall pay for the Grantor’s project overhead expenses based on certain percentages of total construction costs or of periodic maintenance works on the project roads. Fees billed by TRB amounted to P=8.2 million, P=6.0 million and P=11.7 million in 2010, 2009 and 2008, respectively.
Upon expiry of the service concession period, MNTC shall hand-over the project roads to the Grantor without cost, free from any and all liens and encumbrances and fully operational and in good working condition, including any and all existing land required, works, toll road facilities and equipment found therein directly related to and in connection with the operation of the toll road facilities.
As further discussed in Note 5, in October 2008, TRB approved MNTC’s proposal to extend the service concession term for Phase I and Segment 8.1 of the Project until December 31, 2037, subject to certain conditions.
In 2010, MNTC signed the Amended STOA for the NLE which includes the integration of Segment 10 into Phase II; amendment of adjustment formula for the Authorized Toll Rate by removing the foreign exchange factor; adoption of an integrated operations period for Phase I and Segment 8.1; extension of the Concession Period until December 31, 2037; modification of alignments of Phase II Segments 9 and 10; adoption of two open system tolling zones; and the extension of the effectivity of the toll rate formula.
3. Basis of Preparation and Summary of Significant Accounting Policies
Basis of Preparation The consolidated financial statements have been prepared on a historical cost basis, except for derivative financial instruments and available-for sale (AFS) financial assets which are measured at fair value. The consolidated financial statements are presented in Philippine peso, which is the Company’s functional and presentation currency.
Statement of Compliance The consolidated financial statements of the Company have been prepared in compliance with Philippine Financial Reporting Standards (PFRS).
Basis of Consolidation The consolidated financial statements comprise the financial statements of the Parent Company and its subsidiaries as of December 31, 2010 and 2009 and for each of the three years in the period ended December 31, 2010.
Subsidiaries are entities over which the Company has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights.
Subsidiaries are fully consolidated from the date the Company obtains control and continue to be consolidated until the date that such control ceases or transferred out of the Company. When subsidiaries are sold, the difference between the selling price and the net assets plus cumulative translation differences and goodwill, if any, is recognized in the consolidated statement of income.
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A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. Transactions with non-controlling interests, prior to January 1, 2010, were accounted for using the parent entity extension method, whereby, the difference between the consideration and the book value of the share of the net assets acquired were recognized as goodwill.
When the Company loses control of a subsidiary, it derecognizes the assets and liabilities and the related equity components of the former subsidiary. Any gain or loss is recognized in profit or loss. Any investment retained in the former subsidiary is measured at its fair value at the date control is lost.
The financial statements of the subsidiaries are prepared for the same reporting year as the Parent Company, using consistent accounting policies. All intra-group balances, transactions, income and expenses, unrealized gains and losses and dividends resulting from intra-group transactions are eliminated in full.
Profit or loss and each component of other comprehensive income are attributed to the owners of the Parent Company or non-controlling interest even if that results in the non-controlling interest having a deficit balance. Prior to January 1, 2010, non-controlling interest only share in losses incurred by the Company until the non-controlling interest in the subsidiary was reduced to nil and any further excess losses were attributed to the parent, unless the non-controlling interest had a binding obligation to cover the excess losses.
Non-controlling interests represent the interest in MNTC and Metro Strategic Infrastructure Holdings, Inc. (MSIHI) not held by the Parent Company, and are presented separately in the consolidated statement of income and within equity in the consolidated balance sheet, separately from equity attributable to equity holders of the parent.
The Parent Company’s subsidiaries are as follows:
Activity Percentage of Ownership 2010 2009 2008 MPTDC (see Notes 1 and 2) Holding Company 100.0 100.0 100.0 LTC (dormant)* Tollway Operations 100.0 100.0 100.0 MNTC* (see Notes 1 and 2) Tollway Operations 67.1 67.1 67.1 MSIHI (see Note 6) Holding Company 57.0 – – *Owned through MPTDC.
MSIHI. MSIHI is primarily engaged to purchase, subscribe for, or otherwise acquire and own or dispose of real and personal properties including shares of stock, bonds, debentures, notes, other evidences of indebtedness, and any other securities, contracts or obligations. MSIHI’s main asset is its 2.7% interest in Citra Metro Manila Tollways Corporation (CMMTC) (see also Note 13). CMMTC is engaged primarily in the design, construction and financing of the Metro Manila Skyway (in three stages) and the proposed Metro Manila Tollways projects. On January 1, 1999, CMMTC started its regular commercial operations for its Phase 1 of Stage I Project (Bicutan to Magallanes), while Phase 2 of Stage I (Magallanes to Buendia) started its regular operations on July 11, 1999.
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Changes in Accounting Policies The accounting policies adopted are consistent with those of the previous financial year except for the adoption of the following new and amended PFRS and Philippine Interpretations of the International Financial Reporting Interpretations Committee (IFRIC) which were effective beginning January 1, 2010.
§ PFRS 2, “Share-based Payment” (Amendment) – Group Cash-settled Share-based Payment Transactions, effective for annual periods beginning on or after January 1, 2010
§ PFRS 3 (Revised), “Business Combinations”, effective for annual periods beginning on or after July 1, 2009
§ Philippine Accounting Standards (PAS) 27 (Amended), “Consolidated and Separate Financial Statements”, effective for annual periods beginning on or after July 1, 2009
§ PAS 39, “Financial Instruments: Recognition and Measurement” (Amendment) – Eligible Hedged Items, effective for annual periods beginning on or after July 1, 2009
§ Philippine Interpretation IFRIC 17, “Distributions of Non-Cash Assets to Owners”, effective for annual periods beginning on or after July 1, 2009
§ 2009 Improvements to PFRSs, effective for annual periods beginning on or after July 1, 2009, except for the amendments to PFRS 5, “Non-current Assets Held for Sale and Discontinued Operations,” PFRS 8, “Operating Segments,” PAS 1, “Presentation of Financial Statements,” PAS 7, “Statement of Cash Flows,” PAS 17, “Leases,” PAS 36 , “Impairment of Assets,” and PAS 39, “Financial Instruments: Recognition and Measurement,” which are effective for annual periods beginning on or after January 1, 2010.
The adoption of the standards or interpretations is described below:
§ PFRS 2 — The amendment to PFRS 2 clarified the scope and the accounting for group cash-settled share-based payment transactions. The adoption of this amendment did not have any impact on the financial position or performance of the Company.
§ PFRS 3 (Revised) and PAS 27 (Amended) — PFRS 3 (Revised) introduces significant changes in the accounting for business combinations occurring after becoming effective. Changes affect the valuation of non-controlling interest, the accounting for transaction costs, the initial recognition and subsequent measurement of a contingent consideration and the accounting for business combinations achieved in stages. The change in accounting policy was applied prospectively and these changes will impact the amount of goodwill recognized and the reported results for business combinations occurring after January 1, 2010.
PAS 27 (Amended) requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity as owners. Therefore, such transactions will no longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The amendments to PAS 27 were applied retrospectively subject to certain exceptions and had no significant impact on the financial position or performance of the Company.
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§ PAS 39 — The amendment clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as hedged item. This also covers the designation of inflation as a hedged risk or portion in particular situations. The adoption of these amendments did not have any impact on the financial position or performance of the Company, as the Company has not entered into such hedges.
§ Philippine Interpretation IFRIC 17 — This interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. This interpretation did not have any impact on the financial position or the performance of the Company as the Company has not made non-cash distributions to shareholders in the past.
Improvements to PFRSs Improvements to PFRSs, an omnibus of amendments to standards, deal primarily with a view of removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The adoption of the following amendments resulted in changes to accounting policies but did not have any impact on the financial position or performance of the Company.
§ PAS 7 — The amendment stated that only expenditure that results in recognizing an asset can be classified as a cash flow from investing activities.
§ PAS 39 — clarifies the following:
a. that a prepayment option is considered closely related to the host contract when the exercise price of a prepayment option reimburses the lender up to the approximate present value of lost interest for the remaining term of the host contract.
b. that the scope exemption for contracts between an acquirer and a vendor in a business combination to buy or sell an acquiree at a future date applies only to binding forward contracts, and not derivative contracts where further actions by either party are still to be taken.
c. that gains or losses on cash flow hedges of a forecast transaction that subsequently results in the recognition of a financial instrument or on cash flow hedges of recognized financial instruments should be reclassified in the period that the hedged forecast cash flows affect profit or loss.
§ PFRS 8, “Operating Segments” –– clarifies that segment assets and liabilities need only be reported when those assets and liabilities are included in measures that are used by the chief operating decision maker.
Other amendments resulting from Improvements to PFRSs to the following standards and interpretations did not have any impact on the accounting policies, financial position or performance of the Company:
§ PFRS 2, “Share-based Payment” § PFRS 5, “Non-current Assets Held for Sale and Discontinued Operations” § PAS 1, “Presentation of Financial Statements” § PAS 17, “Leases” § PAS 36, “Impairment of Assets” § PAS 38, “Intangible Assets” § Philippine Interpretation IFRIC 9, “Reassessment of Embedded Derivatives” § Philippine Interpretation IFRIC 16, “Hedges of a Net Investment in a Foreign Operation”
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Cash and Cash Equivalents Cash and cash equivalents include cash on hand and in banks and short-term deposits with original maturities of three months or less from the date of acquisition and are subject to an insignificant risk of changes in value.
Investment in an Associate The Company’s investment in TMC, a 46.0% owned associate, where the Company has the ability to exercise significant influence since the date of acquisition, is accounted for under the equity method.
Under the equity method, the investment in TMC is carried in the consolidated balance sheet at cost plus post-acquisition changes in the Company’s share in net assets, less any impairment in value. The consolidated statement of income reflects the Company’s share in the results of operations of the associate. Unrealized gains arising from transactions with its associate are eliminated to the extent of the Company’s investment in the associate against the respective investment amount. Unrealized losses are eliminated similarly but only to the extent that there is no evidence of impairment of the asset transferred.
The reporting dates of the associate and the Company are identical and the associate’s accounting policies conform to those used by the Company for the transactions and events in similar circumstances.
After the application of the equity method, the Company determines whether it is necessary to recognize an additional impairment loss on the Company’s investments in its associate. The Company determines at each balance sheet date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Company calculates the amount of impairment as the difference between the recoverable amount of the investment in associate and its carrying value and recognizes the amount in the consolidated statement of income.
Business Combinations Business combinations from January 1, 2010 are accounted for using the acquisition method of accounting. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included in administrative expenses.
When the Company acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through the consolidated statement of income.
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability, will be recognized in accordance with PAS 39 either in profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it should not be remeasured until it is finally settled within equity.
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Reverse acquisition. A reverse acquisition occurs when the entity that issues securities (the legal acquirer) is identified as the acquiree for accounting purposes. The entity whose equity interests are acquired (the legal acquiree) must be the acquirer for accounting purposes for the transaction to be considered a reverse acquisition.
Business combination prior to January 1, 2010 was accounted for using the purchase method. Under the purchase method, the assets, liabilities and contingent liabilities of the identified “acquiree” were measured at fair value with the cost of combination allocated to all identifiable assets, liabilities and contingent liabilities at the date of acquisition. Any difference between the cost of combination and fair value of identifiable assets were recognized as goodwill. Non-controlling interest (formerly known as minority interest) in the acquiree is stated at the non-controlling interest’s proportionate share of the net fair values of identifiable assets, liabilities and contingent liabilities.
Goodwill Goodwill (included under “Other noncurrent assets”) acquired in a business combination is initially measured at cost being the excess of the cost of business combination over the Company’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. If the cost of acquisition is less than the fair value of the net assets of the acquiree, the difference is recognized directly in the consolidated statement of income.
If the initial accounting for business combination can be determined only provisionally by the end of the period by which the combination is effected because the fair values to be assigned to the acquiree’s identifiable assets, liabilities can be determined only provisionally, the Company accounts for the combination using provisional values. Adjustments to those provisional values as a result of completing the initial accounting shall be made within 12 months from the acquisition date. The carrying amount of an identifiable asset, liability or contingent liability that is recognized as a result of completing the initial accounting shall be calculated as if its fair value at the acquisition date had been recognized from that date and goodwill or any gain recognized shall be adjusted from the acquisition date by an amount equal to the adjustment to the fair value at the acquisition date of the identifiable asset, liability or contingent liability being recognized or adjusted.
Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently, if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether our other assets or liabilities are assigned to those units or groups of units. Each unit or group of units to which the goodwill is allocated: (1) represents our lowest level at which the goodwill is monitored for internal management purposes; and (2) is not larger than a segment as determined in accordance with PFRS 8.
Where goodwill forms part of a cash-generating unit, or group of cash-generating units, and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.
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Financial Assets and Liabilities The Company recognizes a financial asset or a financial liability when it becomes a party to the contractual provisions of the contract. Financial assets are classified as financial assets at FVPL, loans and receivables, held-to-maturity (HTM) investments, and AFS financial assets or as derivatives designated as hedging instruments in an effective hedge, as appropriate. When financial assets are recognized initially, they are measured at fair value plus, in the case of investments not at FVPL, directly attributable transaction costs. The Company determines the classification of its financial assets at initial recognition and, where allowed and appropriate, re-evaluates this designation at each financial year-end.
All regular way purchases and sales of financial assets are recognized on the trade date, which is the date that the Company commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.
Financial liabilities are classified as financial liabilities at FVPL, other financial liabilities, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. Financial liabilities are recognized initially at fair value and in the case of loans and borrowings, inclusive of directly attributable transaction costs. The Company determines the classification of its financial liabilities at initial recognition.
a. Financial Assets and Liabilities at FVPL
Financial assets or liabilities at FVPL include financial assets or liabilities held for trading and those designated upon initial recognition as at FVPL.
A financial asset is classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments or a financial guarantee contract. Gains or losses on investments held for trading are recognized in the consolidated statement of income. Interest earned or incurred is recognized as the interest accrues and dividend income is recorded when the right of payment has been established.
Financial instruments may be designated as at FVPL by management on initial recognition when any of the following criteria are met:
§ The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognizing gains or losses on them on a different basis, or
§ The assets or liabilities are part of a group of financial assets or liabilities, or both financial assets and liabilities, which are managed and their performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, or
§ The financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded.
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Assets and liabilities classified under this category are carried at fair value in the consolidated balance sheet, with any gains or losses being recognized in the consolidated statement of income.
The Company accounts for its derivative transactions (including embedded derivatives) under this category with fair value changes being reported directly in the consolidated statement of income, except when the derivative is treated as an effective accounting hedge, in which case the fair value change is either reported in the consolidated statement of income with the corresponding adjustment from the hedged transaction (fair value hedge) or deferred in equity (cash flow hedge) under “Other comprehensive income reserve” account.
As of December 31, 2010 and 2009, the Company has outstanding cross currency and interest rate swaps classified as financial assets at FVPL (see Note 30).
b. Loans and Receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, loans and receivables are subsequently carried at amortized cost using the effective interest rate method less any allowance on impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and includes fees that are integral part of the effective interest rate and transaction costs. Gains and losses are recognized in the consolidated statement of income when the loans and receivables are derecognized or impaired, as well as through the amortization process. Assets under this category are classified as current assets if maturity is within 12 months as of the balance sheet date and noncurrent assets if maturity is more than a year from the balance sheet date.
Loans and receivables include cash and cash equivalents, receivables, due from related parties, advances to an associate and refundable deposits (included in “Other noncurrent assets” account in the consolidated balance sheet).
c. HTM Investments
HTM investments are quoted non-derivative financial assets with fixed or determinable payments and fixed maturities wherein the Company has the positive intention and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this classification. Where the Company sells other than an insignificant amount of HTM investments, the entire category would be tainted and reclassified as AFS investments. Other long-term investments that are intended to be HTM, such as bonds, are subsequently measured at amortized cost. This cost is computed as the amount initially recognized minus principal repayments, plus or minus the cumulative amortization using the effective interest rate method of any difference between the initially recognized amount and the maturity amount. This calculation includes fees paid or received between parties to the contract that are an integral part of the effective interest rate, issuance costs and all other premiums and discounts. Gains and losses are recognized in the consolidated statement of income when the investments are derecognized or impaired, as well as through the amortization process. Assets under this category are classified as current assets if maturity is within 12 months from the balance sheet date and as noncurrent assets if maturity is more than a year from the balance sheet date.
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As of December 31, 2009, HTM investments consist of the Company’s investment in fixed rate retail treasury bonds of the ROP and investment in treasury bills included in “Other current assets” account in the consolidated balance sheet. In 2010, the Company sold a significant portion of its investments before maturity, thus, the Company reclassified the remaining and newly acquired investments as AFS financial assets.
d. AFS Financial Assets
AFS financial assets are non-derivative financial assets that are designated as such or do not qualify to be classified in any of the three preceding categories. AFS financial assets include equity and debt securities. Equity investments classified as available-for-sale are those, which are neither classified as held for trading nor designated at FVPL. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions.
After initial measurement, AFS financial assets are measured at fair value with unrealized gains or losses being recognized as other comprehensive income in the “Other comprehensive income reserve” account, net of related deferred tax, until the investment is derecognized or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the consolidated statement of income. Interest earned on the investments is reported as interest income using the effective interest rate. These financial assets are classified as noncurrent assets unless the intention is to dispose such assets within 12 months from the balance sheet date.
Investments in unquoted equity shares are measured at cost, net of any impairment.
As of December 31, 2010, AFS financial assets consist of investments in fixed rate retail treasury bonds of the ROP previously classified as HTM investments and investment in unquoted shares of CMMTC (see Note 13).
e. Other Financial Liabilities
This category pertains to financial liabilities that are not held for trading or not designated as at FVPL upon the inception of the liability. These include liabilities arising from operations or borrowings.
These financial liabilities are subsequently carried at amortized cost, taking into account the impact of applying the effective interest rate method of amortization (or accretion) for any related premium, discount and any directly attributable transaction costs.
This category includes accounts payable and other current liabilities, due to related parties, dividends payable, long-term debt and financial guarantee obligation.
Loans and Borrowings. All loans and borrowings are initially recognized at fair value of the consideration received less directly attributable transaction costs (referred to herein as “debt issue costs”). Debt issue costs are amortized over the life of the debt instrument using the effective interest rate method. Debt issue costs are netted against the related loans and borrowings allocated correspondingly between the current and noncurrent portion.
After initial recognition, interest bearing loans and borrowings are subsequently measured at amortized cost using the effective interest rate method.
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Gains and losses are recognized in the consolidated statement of income when the liabilities are derecognized, as well as through the amortization process.
Financial Guarantee Contracts. Financial guarantee contracts issued by the Company are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts are recognized initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the balance sheet date and the amount recognized less cumulative amortization.
Offsetting Financial Instruments Financial assets and liabilities are offset and the net amount is reported in the consolidated balance sheet, if and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented at gross amounts in the consolidated balance sheet.
‘Day 1’ Profit or Loss Where the transaction price in a non-active market is different from the fair value from other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Company recognizes the difference between the transaction price and fair value (a ‘Day 1’ profit or loss) in the consolidated statement of income unless it qualifies for recognition as some other type of asset. In cases where the data used is not observable, the difference between the transaction price and model value is only recognized in the consolidated statement of income when the inputs become observable or when the instrument is derecognized. For each transaction, the Company determines the appropriate method of recognizing the ‘Day 1’ profit or loss amount.
Fair Value of Financial Instruments The fair value of financial instruments that are actively traded in organized financial market is determined by reference to quoted market bid prices at the close of business on the balance sheet date. When current bid prices are not available, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction.
For financial instruments where there is no active market, fair value is determined using valuation techniques. Such techniques include comparison to similar investments for which market observable prices exist and discounted cash flow analysis or other valuation models.
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Impairment of Financial Assets The Company assesses at each balance sheet date whether a financial asset or group of financial assets is impaired.
a. Assets carried at amortized cost
The Company first assesses whether objective evidence of impairment (such as the probability of insolvency or significant financial difficulties of the debtor) exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment.
If there is objective evidence that an impairment loss on loans and receivables and HTM investments carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the consolidated statement of income. The assets together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realized or has been transferred to the Company. If a write-off is later recovered, any amount formerly charged is credited to the consolidated statement of income.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in the consolidated statement of income, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.
b. Assets carried at cost
If there is objective evidence that an impairment loss has been incurred on an unquoted equity instruments that is not carried at fair value because its fair value cannot be reliably measured, the amount of the loss is remeasured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset.
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c. AFS financial assets
In the case of equity investments classified as AFS financial assets, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. Where there is evidence of impairment, the cumulative loss (measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in the consolidated statement of income) is removed from other comprehensive income and recognized in the consolidated statement of income. Impairment losses on equity investments are not reversed through the consolidated statement of income; increases in their fair value after impairment are recognized directly in other comprehensive income.
In the case of debt instruments classified as AFS financial assets, impairment is assessed based on the same criteria as financial assets carried at amortized cost. Future interest income is based on the reduced carrying amount and is accrued based on the rate of interest used to discount future cash flows for the purpose of measuring impairment loss. Such accrual is recorded as part of “Interest income” in the consolidated statement of income. If, in subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in the consolidated statement of income, the impairment loss is reversed through the consolidated statement of income.
Derecognition of Financial Assets and Liabilities A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when:
§ the rights to receive cash flows from the asset have expired;
§ the Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a ‘pass-through’ arrangement; or
§ the Company has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
Where the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Company’s continuing involvement in the asset. In that case, the Company also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.
A financial liability is derecognized when the obligation under the liability is discharged, cancelled or has expired.
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Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the consolidated statement of income.
Derivatives and Hedge Accounting
Freestanding Derivatives. For the purpose of hedge accounting, hedges are classified primarily either as: (a) a hedge of the fair value of an asset, liability or a firm commitment (fair value hedge); or (b) a hedge of the exposure to variability in cash flows attributable to an asset or liability or a forecasted transaction (cash flow hedge); or (c) hedge of a net investment in a foreign operation. The Company designated and accounted for certain derivatives under cash flow hedges. The Company did not designate any of its derivatives as fair value hedges and hedges of a net investment in a foreign operation.
At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.
In cash flow hedges, changes in the fair value of a hedging instrument that qualifies as a highly effective cash flow hedge are included in equity under “Other comprehensive income reserve” account, net of related deferred tax. The ineffective portion is immediately recognized in the consolidated statement of income.
If the hedged cash flow results in the recognition of an asset or a liability, gains and losses initially recognized in equity are transferred from equity to consolidated statement of income in the same period or periods during which the hedged forecasted transaction or recognized asset or liability affect the consolidated statement of income.
When the hedge ceases to be highly effective, hedge accounting is discontinued prospectively. In this case, the cumulative gain or loss on the hedging instrument that has been reported directly in equity is retained in equity until the forecasted transaction occurs. When the forecasted transaction is no longer expected to occur, any net cumulative gain or loss previously reported in equity is charged against the consolidated statement of income.
For derivatives that are not designated as effective accounting hedges, any gains or losses arising from changes in fair value of derivatives are recognized directly in the consolidated statement of income.
Embedded Derivatives. Embedded derivatives are bifurcated when the entire hybrid contracts (composed of the host contract and the embedded derivative) are not accounted for at FVPL, the economic risks of the embedded derivatives are not closely related to those of their respective host contracts, and a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative.
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Embedded derivatives that are bifurcated from the host contracts are accounted for as financial assets at FVPL. Changes in fair values are recognized in the consolidated statement of income. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.
The Company assesses whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative when the entity first becomes a party to the contract. Subsequent reassessment is prohibited unless there is a change in the terms of the contract that significantly modifies the cash flows that otherwise would be required under the contract, in which case reassessment is required. The Company determines whether a modification to cash flows is significant by considering the extent to which the expected future cash flows associated with the embedded derivative, the host contract or both have changed and whether the change is significant relative to the previously expected cash flows on the contract.
Current Versus Noncurrent Classification. Derivative instruments that are not designated and effective hedging instrument are classified as current or noncurrent or separated into a current and noncurrent portion based on an assessment of the facts and circumstances (i.e., the underlying contracted cash flows).
§ Where the Company will hold a derivative as an economic hedge (and does not apply hedge accounting) for a period beyond 12 months after the balance sheet date, the derivative is classified as noncurrent (or separated into current and noncurrent portions) consistent with the classification of the underlying item.
§ Embedded derivatives that are not closely related to the host contract are classified consistent with the cash flows of the host contract.
§ Derivative instruments that are designated as, and are effective hedging instruments, are classified consistent with the classification of the underlying hedged item. The derivative instrument is separated into a current portion and noncurrent portion only if a reliable allocation can be made.
Inventories Inventories, which consist of transponders, magnetic cards and spare parts, are valued at the lower of cost and net realizable value (NRV). Cost includes purchase cost and import duties and is determined primarily on a first-in, first-out method. For transponders and magnetic cards, NRV is the estimated selling price in the ordinary course of business, less estimated costs necessary to make the sale. NRV for spare parts is the current replacement cost.
Advances to Contractors and Consultants Advances to contractors and consultants represent the advance payments for mobilization of the contractors and consultants. These are stated at costs less any impairment in value. These are progressively reduced upon receipt of the equivalent amount of services rendered by the contractors and consultants.
Property and Equipment Property and equipment is stated at cost less accumulated depreciation and any impairment in value. The cost of property and equipment consists of its purchase price and any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Cost also includes the cost of replacing the part of such property and equipment when the recognition criteria are met.
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Expenditures incurred after the property and equipment have been put into operation, such as repairs and maintenance, are normally recognized as expense in the period such costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as additional cost of the property and equipment.
An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the consolidated statement of income in the year the item is derecognized.
Depreciation commences once the property and equipment are available for use and is calculated on a straight-line basis over the estimated useful life of the asset.
Fully depreciated property and equipment are retained in the accounts until they are no longer in use and no further depreciation is charged to the consolidated statement of income.
The assets’ residual values, useful lives and method of depreciation are reviewed at each financial year-end, and adjusted prospectively, if appropriate.
Service Concession Arrangements The Company accounts for its concession arrangements under the intangible asset model as it receives the right (license) to charge users of public service.
In addition, the Company recognizes and measures construction revenue in accordance with PAS 11, “Construction Contracts,” and PAS 18, “Revenue,” for the services it performs.
When the Company provides construction or upgrade services, the consideration received or receivable by the Company is recognized at its fair value.
The Company also recognizes its contractual obligations to restore the toll roads to a specified level of serviceability in accordance with PAS 37, “Provisions, Contingent Liabilities and Contingent Assets,” as the obligations arise which is as a consequence of the use of the toll roads and therefore it is proportional to the number of vehicles using the toll roads and increasing in measurable annual increments.
Service Concession Assets. The service concession assets are recognized initially at the fair value of the construction services. Following initial recognition, the service concession assets are carried at cost less accumulated amortization and any impairment losses.
Service concession assets are amortized using the straight-line method over the term of the service concession. The amortization period and method for an intangible asset with a finite useful life is reviewed at least each financial period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the service concession assets are accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense is recognized under the “Cost of services” account in the consolidated statement of income.
The service concession assets will be derecognized upon turnover to the Grantor. There will be no gain or loss upon derecognition as the service concession assets which is expected to be fully depreciated by then, will be handed over to the Grantor with no consideration.
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Impairment of Nonfinancial Assets The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Company makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples or other available fair value indicators. Impairment losses of continuing operations are recognized in the consolidated statement of income in those expense categories consistent with the function of the impaired asset.
An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation or amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the consolidated statement of income unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal, the depreciation (in case of property and equipment) and amortization (in case of service concession assets) charges are adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.
Provisions Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Where the Company expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the consolidated statement of income, net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as interest expense.
Equity Capital stock is measured at par value for all shares issued. Incremental costs incurred directly attributable to the issuance of new shares are shown in equity as deduction from proceeds, net of tax. Proceeds and/or fair value of considerations received in excess of par value, if any, are recognized as additional paid-in capital.
Retained earnings represent the accumulated earnings net of dividends declared.
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Treasury shares are own equity instruments which are reacquired, recognized at cost and deducted from equity. No gain or loss is recognized in the consolidated statement of income on the purchase, sale, issue or cancellation of the Company’s own equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognized in other capital reserves.
Other comprehensive income reserve comprise items of income and expense, including recycling to profit and loss, that are not recognized in the consolidated statement of income as required or permitted by other PFRS.
Other reserves comprise the contribution from MPIC in relation to its executive stock option plan granted to MPTC employees accounted for as equity-settled share-based payment transactions.
Non-controlling interests represent the equity interests in MNTC and MSIHI not held by the Parent Company.
Revenue Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the amount of the revenue can be measured reliably, regardless of the payment is being made. Revenue is measured at fair value of the consideration received or receivable, taking into account contractually defined terms of payment, excluding discounts and rebates. The Company assesses its revenue against specific criteria in order to determine if it is acting as principal or agent. The Company has concluded that it is acting as principal in all of its revenue arrangements. The following specific criteria must also be met before revenue is recognized:
Revenue from toll fees is recognized upon the sale of toll tickets. Toll fees received in advance, through transponders or magnetic cards, is recognized as income upon the holders’ availment of the toll road services, net of sales discounts. The unused portion of toll fees received in advance is reflected as “Unearned toll revenue” in the consolidated balance sheet.
Revenue from sale of transponders and magnetic cards is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer normally upon delivery.
Construction revenue is recognized by reference to the stage of completion of the contract activity at the balance sheet date. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognized as an expense immediately.
Guarantee fees are recognized in accordance with the terms of the agreement.
Interest income is recognized as the interest accrues using the effective interest rate method.
Management fees are recognized when services are rendered.
Other income is recognized when there is an incidental economic benefits, other than the usual business operations, that will flow to the Company through an increase in asset or reduction in liability and that can be measured reliably.
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Cost and Expenses Cost and expenses are decreases in economic benefits during the accounting period in the form of outflows or decrease of assets or incurrence of liabilities that result in decrease in equity, other than those relating to distributions to equity participants. Cost of services, general and administrative expenses, construction costs and interest expense and other finance costs are recognized in the consolidated statement of income in the period these are incurred.
Operating Lease The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of the following applies:
a. There is a change in contractual terms, other than a renewal or extension of the arrangement;
b. A renewal option is exercised or extension granted, unless the term of the renewal or extension was initially included in the lease term;
c. There is a change in the determination of whether fulfillment is dependent on a specified asset; or
d. There is a substantial change to the asset.
Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) and at the date of renewal or extension period for scenario (b).
Company as Lessee. Operating lease payments are recognized as an expense in the consolidated statement of income on a straight-line basis over the term of the lease.
Foreign Currency-denominated Transactions and Translations The Parent Company and its subsidiaries determine their own functional currency and items included in the consolidated financial statements are measured using that functional currency. The Parent Company and its subsidiaries have determined its functional currency to be the Philippine peso. Transactions in foreign currencies are initially recorded in the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency closing exchange rate ruling at the balance sheet date. All differences are taken to the consolidated statement of income with the exception of differences on foreign currency borrowings that are regarded as adjustments to interest cost, and are capitalized as part of the cost of the service concession assets during the construction period.
Borrowing Costs Borrowing costs are capitalized as part of service concession assets if they are directly attributable to the acquisition and construction of the Project. Capitalization of borrowing costs commences when the activities to prepare for the construction of the Project are in progress and expenditures and borrowing costs are being incurred, until the assets are ready for their intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded.
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Borrowing costs include interest charges, amortization of debt issue costs and other costs incurred in connection with the borrowing of funds, including exchange differences arising from foreign currency borrowings used to finance the Project, to the extent that they are regarded as adjustments to interest cost.
Retirement Costs MNTC has a defined benefit retirement plan. The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method. Retirement cost includes current service cost, interest cost, expected return on plan assets, amortization of unrecognized past service costs, recognition of actuarial gains or losses and effect of any curtailments or settlements. Actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses for the plan at the end of the previous reporting year exceeded 10% of the higher of the defined benefit obligation and the fair value of plan assets at that date. These gains or losses are recognized over the expected average remaining working lives of the employees participating in the plan.
The past service cost is recognized as an expense on a straight-line basis over the average period until the benefits become vested. If the benefits are already vested immediately following the introduction of, or changes to, a retirement plan, past service cost is recognized immediately.
The accrued retirement cost is the aggregate of the present value of the retirement obligation and unrecognized actuarial gains and losses reduced by past service cost not yet recognized and the fair value of plan assets out of which the obligations are to be settled directly. If such aggregate is negative, the asset is measured at the lower of such aggregate or the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan.
If the asset is measured at the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan, net actuarial losses of the current period and past service cost of the current period are recognized immediately to the extent that they exceed any reduction in the present value of those economic benefits. If there is no change or an increase in the present value of the economic benefits, the entire net actuarial losses of the current period and past service cost of the current period are recognized immediately. Similarly, net actuarial gains of the current period after the deduction of past service cost of the current period exceeding any increase in the present value of the economic benefits stated above are recognized immediately if the asset is measured at the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan. If there is no change or decrease in the present value of the economic benefits, the entire net actuarial gains of the current period after the deduction of past service cost of the current period are recognized immediately.
A settlement occurs when an entity enters into a transaction that eliminates all further legal or constructive obligation for part or all of the benefits provided under a defined benefit plan, for example, when a lump sum cash payment is made to, or on behalf of, plan participants in exchange for their rights to receive specified post-employment benefits. Gains or losses on settlement of a defined benefit plan are recognized when the settlement occurs. The gains or losses on a settlement comprise: (a) any resulting change in the present value of the defined benefit obligation; (b) any resulting change in fair value of plan assets; and (c) any related actuarial gains and losses and past service cost that had not previously been recognized.
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Share-based Payment MPIC has an Executive Stock Option Plan (ESOP) for eligible executives to receive remuneration in the form of share-based payment transactions, whereby executives render services in exchange for the share option.
Employees of MPTC are granted rights to equity instruments of MPIC as consideration for the services provided to MPTC.
MPTC shall measure the services received from its employees in accordance with the requirements applicable to equity-settled share-based payment transactions, with a corresponding increase recognized in equity as a contribution from MPIC, provided that the share-based arrangement is accounted for as equity-settled in the consolidated financial statements of MPIC.
A parent grants rights to its equity instruments to the employees of its subsidiaries, conditional upon the completion of continuing service with the group for a specified period. An employee of one subsidiary may transfer employment to another subsidiary during the specified vesting period without the employee’s rights to equity instruments of the parent under the original share-based payment arrangement being affected. Each subsidiary shall measure the services received from the employee by reference to the fair value of the equity instruments at the date those rights to equity instruments were originally granted by the parent, and the proportion of the vesting period served by the employee with each subsidiary.
Such an employee may fail to satisfy a vesting condition other than a market condition after transferring between group entities. In this case, each subsidiary shall adjust the amount previously recognized in respect of the services received from the employee. Hence, no amount is recognized on a cumulative basis for the services received from that employee in the financial statements of any subsidiary if the rights to the equity instruments granted by the parent do not vest because of an employee’s failure to meet a vesting condition other than a market condition.
Where the terms of an equity-settled transaction award are modified, the minimum expense recognized is the expense as if the terms had not been modified, if the original terms of the award are met. An additional expense is recognized for any modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee as measured at the date of modification.
Income Taxes
Current Tax. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the tax authority. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the balance sheet date.
Deferred Tax. Deferred tax is provided, using the balance sheet liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
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Deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized for all deductible temporary differences, carryforward of unused tax credits and unused tax losses, to the extent that it is probable that taxable income will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses can be utilized. Deferred tax, however, is not recognized when it arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting income nor taxable income or loss.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become probable that future taxable income will allow the deferred tax assets to be recovered.
Deferred tax assets and deferred tax liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rate (and tax laws) that have been enacted or substantively enacted at the balance sheet date.
Current and deferred tax assets and liabilities relating to items recognized directly in equity are recognized in equity and not in the consolidated statement of income.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
Earnings Per Share Basic earnings per share is computed by dividing net income for the year by the weighted average number of common shares issued and outstanding during the year, after giving retroactive effect to any stock dividend or stock splits, if any, declared during the year.
Dilutive earnings per share is computed by dividing net income for the year by the weighted average of common shares issued and outstanding during the year plus the weighted average number of common shares that would be issued for outstanding common stock equivalent. The Company does not have dilutive common stock equivalents.
Contingencies Contingent liabilities are not recognized in the consolidated financial statements but are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the consolidated financial statements but disclosed when an inflow of economic benefits is probable.
Events After the Balance Sheet Date Post year-end events that provide additional information about the Company’s financial position at the balance sheet date (adjusting events), if any, are reflected in the consolidated financial statements. Post year-end events that are not adjusting events are disclosed in the notes to consolidated financial statements when material.
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4. Future Changes in Accounting Policies
The Company has not applied the following PFRS, Philippine Interpretations and amendments to existing standards which are not yet effective as of December 31, 2010:
§ PFRS 7, “Financial Instruments: Disclosures” (Amendments) – Disclosures – Transfers of Financial Assets (effective for annual periods beginning on or after July 1, 2011) — The amendments will allow users of financial statements to improve their understanding of transfer transactions of financial assets (for example, securitizations), including understanding the possible effects of any risks that may remain with the entity that transferred the assets. The amendments also require additional disclosures if a disproportionate amount of transfer transactions are undertaken around the end of a reporting period. The Company does not expect these amendments to have significant impact on its financial position or performance.
§ PFRS 9, “Financial Instruments: Classification and Measurement” (effective for annual periods beginning on or after January 1, 2013) — PFRS 9, as issued in 2010, reflects the first phase of the work on the replacement of PAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in PAS 39. In subsequent phases, hedge accounting and derecognition will be addressed. The completion of this project is expected in the middle of 2011. The adoption of the first phase of PFRS 9 will have an effect on the classification and measurement of the Company’s financial assets. The Company will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture.
§ PAS 12, “Income Taxes” (Amendment) – Deferred Tax: Recovery of Underlying Assets (effective for annual periods beginning on or after January 1, 2012) — The amendment provides a practical solution to the problem of assessing whether recovery of an asset will be through use or sale. It introduces a presumption that recovery of the carrying amount of an asset will, normally, be through sale. The Company does not expect this amendment to have significant impact on its financial position or performance.
§ PAS 24 (Amended), “Related Party Disclosures” (effective for annual periods beginning on or after January 1, 2011) — This amendment clarified the definition of a related party to simplify the identification of such relationships and to eliminate inconsistencies in its application. The revised standard introduces a partial exemption of disclosure requirements for government-related entities. The Company does not expect any impact on its financial position or performance.
§ PAS 32, “Financial Instruments: Presentation” (Amendment) – Classification of Rights Issues (effective for annual periods beginning on or after February 1, 2010) — This amended the definition of a financial liability in order to classify rights issues (and certain options or warrants) as equity instruments in cases where such rights are given pro rata to all of the existing owners of the same class of an entity’s non-derivative equity instruments, or to acquire a fixed number of the entity’s own equity instruments for a fixed amount in any currency. The Company expects that this interpretation will have no impact on the financial statements.
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§ Philippine Interpretation IFRIC 14 (Amendment), “Prepayments of a Minimum Funding Requirement” (effective for annual periods beginning on or after January 1, 2011) — The amendment provides guidance on assessing the recoverable amount of a net pension asset. The amendment permits an entity to treat the prepayment of a minimum funding requirement as an asset. The Company expects that this interpretation will have no impact on the financial statements.
§ Philippine Interpretation IFRIC 15, “Agreements for the Construction of Real Estate” (effective for annual periods beginning on or after January 1, 2012) — This interpretation covers accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. This interpretation requires that revenue on construction of real estate be recognized only upon completion, except when such contract qualifies as construction contract to be accounted for under PAS 11 or involves rendering of services in which case revenue is recognized based on stage of completion. Contracts involving provision of services with the construction materials and where the risks and reward of ownership are transferred to the buyer on a continuous basis will also be accounted for based on stage of completion. The Company does not conduct such activity and, therefore, does not expect this interpretation to have an impact on the financial statements.
§ Philippine Interpretation IFRIC 19, “Extinguishing Financial Liabilities with Equity Instruments” (effective for annual periods beginning on or after July 1, 2010) — This interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as consideration paid. The equity instruments issued are measured at their fair value. In case that this cannot be reliably measured, the instruments are measured at the fair value of the liability extinguished. Any gain or loss is recognized in the statement of income. The Company expects that this interpretation will have no impact on the financial statements.
Improvements to PFRSs 2010 Improvements to PFRSs is an omnibus of amendments to PFRSs. The amendments have not been adopted as they become effective for annual periods on or after either July 1, 2010 or January 1, 2011. The amendments listed below, are considered to have a reasonable possible impact on the Company:
§ PFRS 3, “Business Combinations” § PFRS 7, “Financial Instruments: Disclosures” § PAS 1, “Presentation of Financial Statements” § PAS 27, “Consolidated and Separate Financial Statements” § Philippine Interpretation IFRIC 13, “Customer Loyalty Programmes”
The Company, however, expects no impact from the adoption of the amendments on its financial position or performance.
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5. Significant Accounting Judgments, Estimates and Assumptions
The preparation of the consolidated financial statements in compliance with PFRS requires management to make judgments and estimates that affect certain reported amounts and disclosures. In preparing the consolidated financial statements, management has made its best judgments and estimates of certain amounts, giving due consideration to materiality. The judgments and estimates used in the accompanying consolidated financial statements are based upon management’s evaluation of relevant facts and circumstances as of the date of the consolidated financial statements. Actual results could differ from those estimates, and such estimates will be adjusted accordingly.
The Company believes that the following represent a summary of these significant judgments and estimates and the related impact and associated risks in the consolidated financial statements.
Judgments In the process of applying the Company’s accounting policies, management has made the following judgments, apart from those involving estimations, which has the most significant effect on the amounts recognized in the consolidated financial statements.
Determination of Functional Currency. Based on the economic substance of the underlying circumstances relevant to the Company, the functional currency has been determined to be the Philippine peso. It is the currency that mainly influences the selling prices for the Company’s services and the currency that influences labor and other costs of providing services.
Service Concession Arrangements. Philippine Interpretation IFRIC 12, “Service Concession Arrangements,” outlines an approach to account for contractual arrangements arising from entities providing public services. It provides that the operator should not account for the infrastructure as property, plant and equipment, but recognize a financial asset and/or an intangible asset.
As discussed in Note 2, the ROP (Grantor), acting by and through the TRB, PNCC (Franchisee) and MNTC (Concessionaire) executed the STOA for the Manila-North Expressway, whereby the ROP granted MNTC the rights, obligations and privileges including the authority to finance, design, construct, operate and maintain the project roads as toll roads (the “Concession”). Upon expiry of the service concession period, MNTC shall hand-over the project roads to the Grantor without cost, free from any and all liens and encumbrances and fully operational and in good working condition, including any and all existing land required, works, toll road facilities and equipment found therein directly related to and in connection with the operation of the toll road facilities.
The Company has made a judgment that the STOA for the Manila-North Expressway qualifies under the intangible asset model, wherein the service concession assets are recognized as an intangible asset in accordance with PAS 38. This intangible asset is amortized using the straight-line method over the life of the concession agreement, as management believes that straight-line best reflect the pattern of consumption of the concession assets. The carrying value of service concession assets amounted to P=15,817.9 million and P=15,124.0 million as of December 31, 2010 and 2009, respectively (see Note 12).
The Company also recognizes construction revenues and costs in accordance with PAS 11. It measures contract revenue at the fair value of the consideration received or receivable. Given that MNTC has subcontracted the construction to outside contractors, the construction revenue recognized is equal to the construction costs. Construction revenue and costs recognized in the consolidated statements of income amounted to P=1,253.1 million, P=319.8 million and P=56.0 million for the years ended December 31, 2010, 2009 and 2008, respectively.
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The Company also recognizes its contractual obligations to restore the toll roads to a specified level of serviceability starting January 1, 2008 following the final turnover of the Phase I of the Project from the contractor in October 2007. The Company recognizes a provision following PAS 37 as the obligation arises which is a consequence of the use of the toll roads and therefore it is proportional to the number of vehicles using the roads and increasing in measurable annual increments. Provision for heavy maintenance amounted to P=396.7 million and P=415.8 million as of December 31, 2010 and 2009, respectively (see Note 16).
Operating Lease Commitments - Company as Lessee. In 2010 and 2009, MPTC entered into a five-year lease agreement from August 13, 2009 to August 14, 2014 covering certain office units and parking spaces. In 2010, 2009 and 2008, MNTC entered into a lease agreement covering a storage room. In 2008, MPTDC have entered into lease agreements covering its office space. MPTDC’s lease agreement of office space was pre-terminated in October 31, 2008. The Company has determined that the significant risks and rewards are retained by the lessor and accounts for the lease as an operating lease.
Rental expense amounted to P=1.4 million, P=0.4 million and P=1.4 million for the years ended December 31, 2010, 2009 and 2008, respectively (see Note 21).
Classifying HTM Investments. The classification to HTM investments requires significant judgment. In making this judgment, the Company evaluates its intention and ability to hold such investments to maturity. If the Company fails to keep these investments to maturity, it will be required to reclassify the entire portfolio as part of AFS financial assets. The investments would therefore be measured at fair value and not at amortized cost.
In 2009, the Company classified its investments in bonds and treasury bills as HTM investments. The total carrying value of the HTM investment amounted to P=404.6 million as of December 31, 2009 (see Note 30). However, in 2010, the Company sold a significant portion of its investments in bonds before their maturity, thus, the Company reclassified the remaining and newly acquired investment in bonds as AFS financial assets and remeasured the investments to fair value (see Note 13).
Fair Value of Financial Assets not Quoted in an Active Market. The Company classifies financial assets by evaluating, among others, whether the asset is quoted or not in an active market. Included in the evaluation on whether a financial asset is quoted in an active market is the determination on whether quoted prices are readily and regularly available, and whether those prices represent actual and regularly occurring market transactions on an arm’s length basis.
The fair value and carrying value of AFS financial assets not quoted in an active market amounted to P=141.0 million as of December 31, 2010 (see Note 13). There were no AFS financial assets as of December 31, 2009.
Estimates and Assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
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Determination of Fair Value of Financial Instruments (including derivatives). The Company initially records all financial instruments at fair value and subsequently carries certain financial assets and liabilities at fair value, which requires extensive use of accounting estimates and judgment. Valuation techniques are used particularly for financial assets and financial liabilities (including derivatives) that are not quoted in an active market. Where valuation techniques are used to determine fair values (discounted cash flow analysis and option pricing models), they are periodically reviewed by qualified personnel who are independent of the trading function. All models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practicable, models use only observable data as valuation inputs. However, other inputs such as credit risk (whether that of the Company or the counterparties), forward prices, volatilities and correlations, require management to develop estimates or make adjustments to observable data of comparable instruments. The amount of changes in fair values would differ if the Company uses different valuation assumptions or other acceptable methodologies. Any change in fair value of these financial instruments (including derivatives) would affect either the consolidated statement of income or equity.
Fair values of financial assets and liabilities are presented in Note 30.
Allowance for Doubtful Accounts. Allowance for doubtful accounts is maintained at a level considered adequate to provide for potentially uncollectible receivables. The level of allowance is based on past collection experience and other factors that may affect collectibility. An evaluation of the receivables, which is designed to identify potential charges to the allowance, is performed on a continuous basis throughout the year.
There were no provisions under collective assessment in 2010, 2009 and 2008.
Receivables (net of allowance for doubtful accounts of P=5.3 million as of December 31, 2010 and 2009) amounted to P=56.9 million and P=29.8 million as of December 31, 2010 and 2009, respectively (see Note 9).
Due from related parties (current and noncurrent) amounted to P=597.9 million and P=605.4 million as of December 31, 2010 and 2009, respectively (see Note 18).
Input/Output Value Added Tax (VAT). As also discussed in Note 32, upon the effectivity of Republic Act No. 9337 (RA 9337), the Bureau of Internal Revenue (BIR) issued Revenue Regulation (RR) No. 16-2005 on September 1, 2005, which, for the first time, expressly referred to toll road operations as being subject to VAT. This notwithstanding VAT Ruling 078-99 issued on August 9, 1999 where BIR categorically ruled that MNTC, as assignee of the PNCC franchise, is entitled to the tax exemption privileges of PNCC and is exempt from VAT on its gross receipts from the operation of the NLE.
However, the TRB, in its letter dated October 28, 2005, directed MNTC (and all Philippine toll expressway companies) to defer the imposition of VAT on toll fees.
Due to the effectivity of RA 9337 and the possibility that MNTC may eventually be subjected to VAT, MNTC in 2005, carved out the input tax on its purchases of goods and services in 2004 that were previously recorded as part of the service concession assets and recorded such input tax, together with the input tax from 2005 purchases and onwards, as a separate “Input value added tax” account and accordingly reflected the input tax in the VAT returns.
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In September 2005, MNTC requested for confirmation from the BIR that MNTC can claim input VAT for the passed-on VAT on its purchases of goods and services for 2003 and prior years. The request for confirmation is still pending as of February 23, 2011. Thus, MNTC continues to account for input tax from 2003 and prior years’ purchases as part of service concession assets, subject to amortization.
On December 21, 2009, the BIR issued Revenue Memorandum Circular (RMC) No. 72-2009 as a reiteration of RMC No. 52-2005 imposing VAT on the tollway operators. However, on January 21, 2010, the Tollways Association of the Philippines (TAP) issued a letter to tollway operators referring to a letter issued by TRB to TAP dated December 29, 2009 reiterating TRB’s previous instruction to all toll operators to defer the imposition of VAT on toll fees until further orders from their office. The TRB directive resulted from the Cabinet meeting held last December 29, 2009 at Baguio City where the deferment of the implementation of RMC No. 72-2009 was discussed.
Thus, MNTC has deferred, and continues to defer, the imposition of VAT from motorists. Accordingly, MNTC, with VAT being a passed on tax, did not recognize any VAT liability.
In view of RMC No. 72-2009 which reaffirmed that toll operators are subject to 12% VAT, the latest directive from TRB for the continued deferment of the imposition of VAT and MNTC’s filing of amnesty for VAT for the years 2005 and prior years, management deemed it more prudent to implement the following in 2009 with respect to the input VAT as it appears that the tollway operators will be subject to 12% VAT on a prospective basis:
a. Certain input VAT from 2005 and prior years that relates to the construction of the toll road should form part of the service concession assets and should be amortized over the remaining service concession term (for financial accounting purposes only). This is on the basis of management’s view that prior to the effectivity of RA 9337, MNTC is exempt from VAT. Thus, input VAT amounting to P=607.2 million as of December 31, 2009, that were previously part of the “Input-value added tax” account, were reclassified to service concession assets to be amortized over the remaining service concession term (see Note 12). Annual amortization expense is expected to increase by P=21.7 million starting in year 2010 as a result of the reclassification.
b. Certain input VAT from 2005 and prior years that relates to operating expenses were written off as an expense in 2009 and this amounted to P=94.3 million (see Note 21).
c. Input VAT from 2006 and onwards were provided with allowance for potential losses which amounted to P=1,104.6 million in 2009 (see Note 21).
On March 26, 2010, the BIR issued RMC No. 30-2010 directing the imposition of the 12% VAT starting April 1, 2010, with coverage initially limited to private vehicles. However, on March 30, 2010, the TAP issued a letter to tollway operators referring to a letter issued by TRB to TAP dated March 30, 2010 directing the deferment of collection of VAT on toll fees until further orders from their office.
On May 21, 2010, the BIR issued a Notice of Informal Conference (Notice) assessing MNTC for deficiency VAT plus penalties amounting to P=1.0 billion for taxable year 2009. Included also in the Notice is the increase of the deficiency VAT for taxable year 2008 from P=470.9 million to P=1.2 billion (including penalties).
As further discussed in Note 32, to fully implement the imposition of the VAT on toll fees, the BIR issued RMC No. 63-2010 dated July 19, 2010.
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Meanwhile, on August 4, 2010, MNTC, in accordance with RMC No. 63-2010, applied for abatement of alleged VAT liabilities for taxable years 2006, 2007, 2008 and 2009. The BIR has yet to resolve the application for abatement of MNTC.
On August 13, 2010, the Supreme Court (SC) issued a temporary restraining order (TRO) on the imposition of the 12% VAT on tollway operators. The TRO has not been lifted as of February 23, 2011.
In view of the foregoing, MNTC has continued not to recognize any VAT liability while providing 100% allowance for the accumulated input VAT.
Input VAT is nil as of December 31, 2010 and 2009, net of allowance for potential losses on input VAT amounting to P=1,438.7 million and P=1,104.6 million as of December 31, 2010 and 2009, respectively. Provision for potential losses on input VAT amounted to P=334.1 million in 2010 and P=1,104.6 million in 2009 (see Note 21).
Estimating NRV of Inventories. Inventories are presented at the lower of cost or NRV. Estimates of NRV are based on the most reliable evidence available at the time the estimates are made of the amount the inventories are expected to be realized. A review of the items of inventories is performed at each balance sheet date to reflect the accurate valuation of inventories in the consolidated financial statements.
There was no write-down of inventories recognized in the financial statements for the years ended December 31, 2010, 2009 and 2008.
Inventories amounted to P=37.9 million and P=36.7 million as of December 31, 2010 and 2009, respectively.
Estimated Useful Lives. The useful life of each of the Company’s item of property and equipment and service concession assets are estimated based on the period over which the assets are expected to be available for use. Such estimation is based on a collective assessment of similar businesses, internal technical evaluation and experience with similar assets. The estimated useful life of each asset is reviewed periodically and updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the asset. It is possible, however, that future results of operations could be materially affected by changes in the amounts and timing of recorded expenses brought about by changes in the factors mentioned above. An increase in the estimated useful life of any item of property and equipment and service concession assets would decrease the recorded depreciation expense and amortization, respectively.
In October 2008, TRB approved the extension of the service concession term for Phase I and Segment 8.1 of the Project from the original term ending 2030 to December 2037, subject to the following conditions: (a) the immediate submission of an updated implementation schedule, including preparatory activities and studies for Phase II and III of the Project; and (b) TRB to conduct an audit in the determination of applicable toll rates. The first condition is a basic component of any project development while the fulfillment of the second condition depends on the initiative of TRB given that MNTC’s books are always available for TRB’s audit. On the basis of the foregoing, management believes that the conditions will be easily complied with no additional cost, thus, as allowed under PAS 38, starting October 2008, the revised life was used by MNTC for purposes of computing amortization. The change in estimated useful life resulted to a reduction in amortization expense in 2008 by P=33.0 million.
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The carrying value of property and equipment amounted to P=116.5 million and P=113.5 million as of December 31, 2010 and 2009, respectively (see Note 11). The carrying value of service concession assets amounted to P=15,817.9 million and P=15,124.0 million as of December 31, 2010 and 2009, respectively (see Note 12).
Impairment of AFS Financial Assets. The Company treats AFS financial assets as impaired where there has been a significant or prolonged decline in the fair value below its cost or where other objective evidence of impairment exists. The determination of what is “significant” or “prolonged” requires judgment. The Company treats “significant” generally as 20% or more and “prolonged” as greater than twelve months for quoted equity securities. In addition, the Company evaluates other factors, including normal volatility in share price for quoted equities and future cash flows and the discount factors for unquoted equities.
The carrying value of AFS financial assets amounted to P=565.0 million as of December 31, 2010 (see Note 13). No impairment loss was recognized in 2010.
Impairment of Nonfinancial Assets. Impairment review for nonfinancial assets (investment in an associate, property and equipment, and service concession assets) is performed when certain impairment indicators are present. Determining the fair value of assets requires the estimation of cash flows expected to be generated from the continued and ultimate disposition of such assets.
The carrying values of nonfinancial assets reviewed for indicators of impairment follows:
2010 2009 Investment in an associate (see Note 10) P=140,711,492 P=124,783,272 Property and equipment (see Note 11) 116,513,288 113,508,414 Service concession assets (see Note 12) 15,817,859,863 15,123,975,760
No impairment loss was recognized in the consolidated financial statements for the years ended December 31, 2010, 2009 and 2008 as there are no indicators of impairment.
Impairment of Goodwill. Goodwill is subject to annual impairment test. The Company determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Company to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows.
No impairment of goodwill was recognized in 2010 and 2009. Provisional goodwill of P=1.4 million was not tested for impairment as allowed by PAS 36. The carrying amount of goodwill amounted to P=15.0 million and P=13.6 million as of December 31, 2010 and 2009 (see Notes 6 and 14).
Deferred Tax Assets and Liabilities. Deferred tax assets are recognized on deductible temporary differences, net operating loss carry-over (NOLCO) and minimum corporate income tax (MCIT) to the extent that it is probable that taxable income will be available against which the deductible temporary differences, NOLCO and MCIT can be utilized. In the case of MNTC, only deferred tax assets and liabilities that are expected to reverse after the income tax holiday (ITH) period were recognized. The Company’s assessment on the recognition of deferred tax assets on deductible temporary differences is based on the expected future financial performance.
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Deferred tax assets amounted to P=214.6 million and P=135.8 million as of December 31, 2010 and 2009, respectively. Deferred tax liabilities amounted to P=536.7 million and P=420.9 million as of December 31, 2010 and 2009, respectively (see Note 26).
Certain deferred tax assets were not recognized since management believes that it is more likely than not that these will not be realized in the future. Unrecognized deferred tax assets on deductible temporary differences amounted to P=13.5 million and P=11.6 million as of December 31, 2010 and 2009, respectively (see Note 26).
Retirement Costs. The cost of defined benefit retirement plan and the present value of retirement obligation are determined based on actuarial valuations. The actuarial valuations involve making various assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates, and future pension increases. Due to the complexity of the valuation, the underlying assumptions and long-term nature of the plan, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are received at each balance sheet date. Further details about the assumptions used are given in Note 22.
Accrued retirement costs amounted to P=0.9 million and P=9.6 million as of December 31, 2010 and 2009, respectively. Cumulative unrecognized actuarial loss amounted to P=20.0 million in 2010, while cumulative unrecognized actuarial gain amounted to P=9.7 million and P=23.3 million in 2009 and 2008, respectively (see Note 22).
Share-based Payments. The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payments requires determining the most appropriate valuation model for a grant of equity instruments, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the option, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value for share-based payments are disclosed in Note 22.
Total cost arising from share-based payments recognized by the Company included in “Salaries and employee benefits“ account under General and administrative expenses amounted to P=1.9 million in 2010 (see Note 22). There are no share-based payment transactions in 2009.
Provisions. The Company recognizes provisions based on estimates of whether it is probable that an outflow of resources will be required to settle an obligation. Where the final outcome of these matters is different from the amounts that were initially recognized, such differences will impact the financial performance in the current period in which such determination is made.
The provisions for the heavy maintenance requires an estimation of the periodic cost, generally estimated to be every five to seven years or the expected heavy maintenance dates, to restore the assets to a level of serviceability during the service concession term and in good condition before turnover to the Grantor. This is based on the best estimate of management to be the amount expected to be incurred to settle the obligation at every heavy maintenance date discounted using a pre-tax rate that reflects the current market assessment of the time value of money and the risk specific to the liability.
Provisions (current and noncurrent) amounted to P=426.5 million and P=455.1 million as of December 31, 2010 and 2009, respectively (see Note 16).
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Contingencies. The Company is a party to certain lawsuits or claims arising from the ordinary course of business. However, the Company’s management and legal counsel believe that the eventual liabilities under these lawsuits or claims, if any, will not have a material effect on the consolidated financial statements. Accordingly, no provision for probable losses arising from contingencies was recognized in the consolidated financial statements as of December 31, 2010 and 2009 (see Note 32).
6. Business Combination
On July 20, 2010, MPTC entered into a SPA with a third party for the acquisition of 148,000 common shares in MSIHI (representing 37% of the outstanding capital stock of MSIHI) for a purchase price of P=51.0 million. An amendment to the SPA was made on August 30, 2010, reflecting the allocation of the purchase price as follows:
§ P=14.8 million as consideration for the MSIHI shares; and
§ P=36.2 million as consideration for the assignment to MPTC of the third party’s deposit for future stock subscription in MSIHI.
On August 30, 2010, the parties signed the Deed of Absolute Sale of Shares and the Deed of Assignment of the deposit for future stock subscription.
Goodwill from the acquisition amounted to P=0.9 million and was included in the carrying value of the investment in an associate.
On December 30, 2010, MPTC acquired from another third party an additional 20% interest in MSIHI. Through a Deed of Absolute Sale of Shares, MPTC agreed to buy the 80,000 MSIHI shares from the said third party for P=8.0 million. In addition, through a Deed of Assignment, the said third party also assigned to MPTC its deposit for stock subscription for P=19.6 million.
As of December 30, 2010, MPTC had acquired 57% of the outstanding capital stock of MSIHI.
The allocation of the total cost of acquisition to identifiable assets, liabilities and contingent liabilities using provisional fair values as at December 30, 2010 is shown below.
Fair Values Recognized on
Acquisition Carrying Value Cash in bank P=26,890 P=26,890 AFS financial asset (see Note 13) 140,953,009 140,953,009 140,979,899 140,979,899 Accounts payable and accrued expenses 702,783 702,783 Due to a related party 1,445,519 1,445,519 Payable to stockholders 3,428,176 3,428,176 5,576,478 5,576,478 Net assets 135,403,421 P=135,403,421 Non-controlling interests (58,223,471) Total net assets acquired 77,179,950 Provisional goodwill (see Note 14 ) 1,460,988 Consideration transferred P=78,640,938
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Total consideration transferred consists of the following:
Total cash paid on acquisition P=27,593,000 Carrying value of previously held interest 51,047,938 P=78,640,938
Pending determination of the final fair values of the assets and liabilities acquired, MPTC recorded its share in the identifiable assets and liabilities of MSIHI using provisional fair values. As permitted by PFRS 3, “Business Combinations,” MPTC will recognize any adjustment to those provisional values as an adjustment to goodwill upon determining the final fair values of identifiable assets and liabilities within 12 months from acquisition date.
Net cash outflow on acquisition is as follows:
Total cash paid on acquisition P=78,640,938 Cash acquired with the subsidiary 26,890 Net cash outflow P=78,614,048
Provisional goodwill amounting to P=1.5 million comprises the value of expected synergies arising from the acquisition.
From the date of acquisition, MSIHI has not contributed any revenue or any income before income tax of the Company. If the combination had taken place at the beginning of the year, revenue would still be the same since MSIHI has no revenue in 2010 while the net income for the Company would have been P=1,426.5 million.
7. Operating Segment Information
The Company has only one operating segment which is the tollways business. The Company’s results of operations are reviewed by the chief operating decision maker to make decisions and to assess Company performance, and for which discrete financial information is available.
The Company’s performance is evaluated based on net income for the year; earnings before interest, taxes and depreciation and amortization (EBITDA); EBITDA margin; core income; and core income margin. Net income for the year is measured consistent with the consolidated net income in the consolidated financial statements.
EBITDA is measured as net income excluding amortization of service concession assets, depreciation of property and equipment, provision for heavy maintenance, asset impairment on noncurrent assets, interest expense and other finance costs, interest income, equity in net earnings of an associate, foreign exchange gain (loss) - net, gain (loss) on derivative financial instruments, provision for (benefit from) income tax and other nonrecurring income and expenses. Nonrecurring items represent income and expenses that, through occurrence or size, are not considered usual operating items.
EBITDA margin pertains to EBITDA divided by net toll revenues.
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Core income for the year is measured as net income attributable to equity holders of MPTC, excluding adjustments on equity in net earnings of an associate, foreign exchange (gain) loss - net, gain (loss) on derivative financial instruments, gain (loss) on prepayment or extinguishment of debt, asset impairment on noncurrent assets, net of tax effects of aforementioned adjustments and other nonrecurring income and expenses, as defined under the Company’s policy.
Core income margin pertains to core income divided by net toll revenues.
Net income margin pertains to net income attributable to equity holders of MPTC divided by net toll revenues.
The revenues, net income, assets, liabilities, and other information of the Company’s operations as at and for the years ended December 31, 2010, 2009 and 2008 are as follows:
2010 2009 2008 Net toll revenues P=5,857,950,486 P=5,487,387,690 P=5,194,698,771 Other income 175,520,862 81,790,398 54,795,462 Total revenues 6,033,471,348 5,569,178,088 5,249,494,233 Operating and maintenance costs (1,909,490,501) (1,913,275,375) (1,845,930,472) Operating expenses (584,506,050) (494,853,744) (495,220,078) Equity in net earnings of an associate 152,209,826 152,167,611 87,659,002 EBITDA 3,691,684,623 3,313,216,580 2,996,002,685 Financing costs (813,276,331) (800,693,288) (738,684,033) Core income before depreciation, amortization
and provisions 2,878,408,292 2,512,523,292 2,257,318,652 Depreciation, amortization and provisions (765,775,394) (799,572,929) (833,499,000) Core income before non-controlling interests 2,112,632,898 1,712,950,363 1,423,819,652 Non-controlling interest (647,821,093) (492,999,528) (436,958,767) Core income 1,464,811,805 1,219,950,835 986,860,885 Nonrecurring items (468,320,776) (638,299,099) (202,932,473) Net income attributable to equity holders of MPTC P=996,491,029 P=581,651,736 P=783,928,412
EBITDA margin for the year 63% 60% 58% Core income margin for the year 25% 22% 19% Net income margin for the year 17% 11% 15%
Total assets P=19,329,132,012 P=18,341,834,547 P=18,728,261,041 Total liabilities 11,227,779,967 10,016,584,416 9,989,457,236 Total equity 8,101,352,045 8,325,250,131 8,738,803,805
Other disclosures: Investment in an associate P=140,711,492 P=124,783,272 P=90,671,496 Capital expenditure (consists of additions to
property and equipment and service concession assets) 1,288,921,898 360,827,347 80,627,320
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The following table shows the reconciliation of EBITDA to net income for the years ended December 31, 2010, 2009 and 2008.
2010 2009 2008 EBITDA P=3,691,684,623 P=3,313,216,580 P=2,996,002,685 Interest expense and other finance costs
(see Note 24) (1,110,673,453) (959,810,696) (903,972,873) Amortization of service concession assets
(see Notes 12 and 20) (559,180,335) (505,052,189) (553,602,687) Interest income (see Note 23) 109,499,696 86,252,406 110,065,923 Provision for heavy maintenance (see Note 20) (54,911,915) (204,538,073) (251,669,149) Depreciation of property and equipment
(see Notes 11 and 21) (29,629,639) (33,661,057) (27,099,763) Nonrecurring items: Provision for potential losses on input VAT
(see Notes 5 and 21) (334,069,949) (1,104,632,613) – Mark-to-market gain (loss) on derivatives
(see Notes 25 and 30) (227,517,489) (19,219,364) 46,924,849 Foreign exchange gain (loss) - net 111,910,835 8,895,157 (398,689,136) Share in nonrecurring items of an associate 10,458,394 21,784,165 25,505,236 Realized gain on derivatives (see Note 25) – – 6,718,219 Gain on sale of investment (see Notes 19
and 25) – 203,942,145 – Write-off of input VAT (see Notes 5 and 21) – (94,271,475) – Loss on extinguishment of debt (see Notes 17
and Note 25) – (9,895,721) – Other nonrecurring items (102,390,747) 1,152,336 13,688,908 Income before income tax 1,505,180,021 704,161,601 1,063,872,212 Provision for (benefit from) income tax
(see Note 26): Current 51,837,904 46,787,153 17,355,774 Deferred 26,642,331 (8,610,306) (62,316,319) 78,480,235 38,176,847 (44,960,545) Net income for the year P=1,426,699,786 P=665,984,754 P=1,108,832,757
The following table shows the reconciliation of the consolidated core income to the consolidated net income for the years ended December 31, 2010, 2009 and 2008.
2010 2009 2008 Core income for the year P=1,464,811,805 P=1,219,950,835 P=986,860,885 Provision for potential losses on input VAT
(see Notes 5 and 21) (334,069,949) (1,104,632,613) – Mark-to-market gain (loss) on derivatives
(see Notes 25 and 30) (227,517,489) (19,219,364) 46,924,849 Share of non-controlling interests in nonrecurring
items 217,612,339 408,666,507 112,054,420 Accelerated amortization of debt issue costs (144,324,159) (25,311,900) – Foreign exchange gain (loss) - net 111,910,835 8,895,157 (398,689,136) Share in nonrecurring items of an associate 10,458,394 21,784,165 25,505,236 Realized gain on derivatives (see Note 25) – – 6,718,219 Loss on extinguishment of debt (see Notes 17
and 25) – (9,895,721) – Gain on sale of investment, net of capital gains tax
(see Notes 19, 25 and 26) – 182,959,145 – Write-off of input VAT (see Notes 5 and 21) – (94,271,475) – Other nonrecurring items (102,390,747) (7,273,000) 4,553,939 Net income attributable to equity holders of MPTC 996,491,029 581,651,736 783,928,412 Net income attributable to non-controlling interests 430,208,757 84,333,018 324,904,345 Net income for the year P=1,426,699,786 P=665,984,754 P=1,108,832,757
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8. Cash and Cash Equivalents
This account consists of:
2010 2009 Cash on hand and in banks (see Note 17) P=1,017,806,740 P=270,506,472 Short-term deposits 856,310,117 1,249,550,103 P=1,874,116,857 P=1,520,056,575
Cash in banks earn interest at the prevailing bank deposit rates. Short-term deposits are made for varying periods of up to three months depending on the immediate cash requirements of the Company, and earn interest at the respective short-term deposit rates.
9. Receivables
This account consists of:
2010 2009 Trade receivables P=30,588,804 P=16,601,005 Advances to officers and employees 5,515,624 5,272,843 Interest and other receivables 26,094,909 13,142,592 62,199,337 35,016,440 Less allowance for doubtful accounts 5,259,500 5,259,500 P=56,939,837 P=29,756,940
Trade receivables are noninterest-bearing and are generally collectible within a year.
Advances to officers and employees are normally collected/liquidated within a month.
Interest and other receivables are collectible within three months. As of December 31 2010, this includes MNTC’s receivable from Philippine Long Distance Telephone Company (PLDT) amounting to P=11.1 million (inclusive of VAT) in relation to the Fiber Cable Overlay Project along Segment 8.1 (see Note 18).
There were no movements in the allowance for individually assessed impaired trade receivables as of December 31, 2010 and 2009.
10. Investment in an Associate
Details of the Company’s investment in TMC, a 46.0% owned associate, are as follows:
2010 2009 Acquisition cost P=17,480,000 P=17,480,000 Accumulated equity in net earnings: Balance at beginning of year 107,303,272 73,191,496 Equity in net earnings for the year 162,668,220 173,951,776 Dividends received (146,740,000) (139,840,000) Balance at end of year 123,231,492 107,303,272 P=140,711,492 P=124,783,272
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As further discussed in Note 18, TMC is primarily engaged in the operations and maintenance of tollways, tollways facilities, interchanges and related works. TMC is the operator of Phase I, including Segment 7, of the Project of MNTC under the O&M.
Also, TMC is a party to joint venture that entered into an agreement with BCDA for the interim operation and maintenance of the SCTEx, a 94-km toll road (see Note 28).
Condensed financial information of TMC follows:
December 31,
2010 December 31,
2009 Total assets P=897,848,778 P=877,545,454 Total liabilities 591,954,229 606,277,470
Years Ended December 31 2010 2009 2008 Revenues P=1,744,767,539 P=1,732,844,321 P=1,637,279,951 Expenses 1,391,140,974 1,387,670,606 1,391,270,738 Net income 353,626,565 345,173,715 246,009,213
TMC’s BOD approved the declaration of cash dividends aggregating to P=319.0 million and P=304.0 million in 2010 and 2009, respectively.
11. Property and Equipment
The movements in this account follow:
Building and Leasehold
Improvements Transportation
Equipment
Office Equipment and Others Total
Cost: At January 1, 2009 P=73,006,615 P=47,945,868 P=103,819,295 P=224,771,778 Additions 1,901,104 17,468,524 21,638,295 41,007,923 Disposals (1,866,743) (7,830,579) (6,364,094) (16,061,416) At December 31, 2009 73,040,976 57,583,813 119,093,496 249,718,285 Additions 2,910,671 16,690,029 16,256,760 35,857,460 Disposals (4,162,963) (10,973,050) (5,827,972) (20,963,985) At December 31, 2010 P=71,788,684 P=63,300,792 P=129,522,284 P=264,611,760
Accumulated depreciation: At January 1, 2009 P=11,014,875 P=29,448,808 P=75,801,065 P=116,264,748 Depreciation (see Note 21) 4,334,993 7,756,483 21,569,581 33,661,057 Disposals (1,120,990) (6,293,273) (6,301,671) (13,715,934) At December 31, 2009 14,228,878 30,912,018 91,068,975 136,209,871 Depreciation (see Note 21) 4,477,892 9,182,053 15,969,694 29,629,639
Disposals (4,162,962) (7,980,657) (5,597,419) (17,741,038) At December 31, 2010 P=14,543,808 P=32,113,414 P=101,441,250 P=148,098,472
Net book value: At December 31, 2010 P=57,244,876 P=31,187,378 P=28,081,034 P=116,513,288 At December 31, 2009 58,812,098 26,671,795 28,024,521 113,508,414 At January 1, 2009 61,991,740 18,497,060 28,018,230 108,507,030
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The estimated useful lives of property and equipment are as follows:
Building 23 years Leasehold improvements 5 years Transportation equipment 5 years Office equipment and others 3–5 years
The gross carrying amount of fully depreciated property and equipment that are still in use amounted to P=95.1 million and P=64.3 million as of December 31, 2010 and 2009, respectively.
12. Service Concession Assets
The movements in the service concession assets follow:
2010 2009 Cost: Balance at beginning of the year P=18,228,898,877 P=17,301,909,575 Additions 1,253,064,438 319,819,424 Reclassification (see Note 5) – 607,169,878 Balance at end of the year P=19,481,963,315 P=18,228,898,877
Accumulated amortization: Balance at beginning of the year P=3,104,923,117 P=2,599,870,928 Amortization (see Note 20) 559,180,335 505,052,189 Balance at end of the year P=3,664,103,452 P=3,104,923,117
Carrying value: At December 31 P=15,817,859,863 P=15,123,975,760 At January 1 14,702,038,647
Additions during 2010 and 2009 pertain mainly to the construction of Segment 8.1 and pre-construction costs for Segments 9 and 10 of Phase II of the Project. Borrowing costs capitalized amounted to P=35.2 million and P=31.7 million for the year ended December 31, 2010 and 2009, respectively. The interest rate used to determine the amount of borrowing costs eligible for capitalization was 9.6% in 2010 and 2009.
As discussed in Note 5, certain input VAT from 2005 and prior years that relates to the construction of the toll road should form part of the service concession assets and should be amortized over the remaining service concession term (for financial accounting purposes only). This is on the basis of management’s view that prior to the effectivity of RA 9337, the Company is exempt from VAT. Thus, input VAT amounting to P=607.2 million as of December 31, 2009 that were previously part of the “Input value added tax” account, were reclassified to the service concession assets to be amortized over the remaining service concession term. As of December 31, 2010 and 2009, the capitalized input VAT amounted to P=585.5 million (net of accumulated amortization of P=21.7 million and P=607.2 million, respectively). The amortization of the capitalized input VAT amounted to P=21.7 million for the year ended December 31, 2010.
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In October 2008, TRB approved MNTC’s proposal to extend the service concession term for Phase I and Segment 8.1 of the Project until December 31, 2037. As of December 31, 2010, the remaining service concession term is 27 years.
13. Available-for-Sale Financial Assets
As of December 31, 2010, this account consists of:
Current - Investment in bonds P=51,812,500 Noncurrent: Investment in shares of stock of CMMTC
(see Note 6) 140,953,009 Investment in bonds 372,280,500 513,233,509 P=565,046,009
Investment in bonds consists of investments in fixed rate retail treasury bonds of the ROP. The quoted ROP treasury bonds which bear fixed interest rates ranging from 5.9% to 9.0% is payable quarterly and with the following maturities:
Maturity Date Fair value Principal Amount July 31, 2011 P=51,812,500 P=50,000,000 July 31, 2013 56,545,500 50,600,000 August 9, 2015 315,735,000 300,000,000 P=424,093,000 P=400,600,000
As discussed in Note 5, in 2009, investments in bonds are classified as HTM investments. As of December 31, 2009, HTM investments amounted to P=400.6 million and stated at amortized costs. In August 2010, MNTC sold P=300.0 million of its investment in retail treasury bonds and invested the same for new retail treasury bonds with higher yield at 5.9% from 5.3%. The maturity date of the new retail treasury bonds is August 2015.
The fair value of the AFS financial assets is based on quoted market price of the ROP government bonds as of December 31, 2010. Gain on fair value change in AFS financial assets for the year ended December 31, 2010 amounting to P=16.4 million (net of tax of P=7.0 million) is recognized as other comprehensive income.
Investment in CMMTC represents 2.7% interest in unquoted shares of stocks of CMMTC (see also Note 6).
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14. Other Noncurrent Assets
This account consists of:
2010 2009 Goodwill: Balance at beginning of year P=13,565,061 P=13,565,061 Additions (see Note 6) 1,460,988 – Balance at end of year 15,026,049 13,565,061 Refundable deposits and other noncurrent assets 21,783,830 5,638,310 P=36,809,879 P=19,203,371
Goodwill is the difference between the cost of business combination and the fair values of assets and liabilities. This includes goodwill arising from the reverse acquisition in 2007 when FPHC and BHC transferred all their shares in MPTDC (then FPIDC, MPTDC regarded as the accounting acquirer) in exchange for shares of MPTC and goodwill arising from acquisition of MSIHI (see Note 6).
15. Accounts Payable and Other Current Liabilities
This account consists of:
2010 2009 Trade payables P=41,448,059 P=84,544,095 Accrued expenses 99,806,463 104,620,434 Withholding taxes payable 58,545,728 35,869,235 Retention payable 25,864,131 16,422,860 Interest payable 23,879,072 36,162,474 Others 36,218,982 8,255,353 P=285,762,435 P=285,874,451
Trade payables and accrued expenses are noninterest-bearing and are normally settled within one year.
Accrued expenses consist of:
2010 2009 Salaries and employee benefits P=36,929,816 P=47,070,692 Professional fees 22,811,301 18,219,443 Construction costs 9,766,486 10,574,249 Outside services 7,750,310 6,064,735 Advertising and marketing 5,685,396 961,062 Repairs and maintenance 5,026,011 8,247,455 Toll collection and medical services 1,810,828 1,835,193 Communication, light and water 780,902 140,000 Management fees (see Note 18) – 2,000,515 Others 9,245,413 9,507,090 P=99,806,463 P=104,620,434
Interest payable is settled semi-annually.
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16. Provisions
The movements in this account follows:
Heavy
Maintenance Others Total At January 1, 2009 P=170,274,906 P=45,123,206 P=215,398,112 Additions (see Notes 20 and 21) 229,082,915 37,466,201 266,549,116 Accretion of interest
(see Note 24) 16,469,483 – 16,469,483 Payments – (43,272,305) (43,272,305) At December 31, 2009 415,827,304 39,317,102 455,144,406 Additions (see Notes 20 and 21) 61,501,345 21,551,247 83,052,592 Payments (80,636,409) (31,026,928) (111,663,337) At December 31, 2010 P=396,692,240 P=29,841,421 P=426,533,661
At December 31, 2010: Current P=88,349,568 P=29,841,421 P=118,190,989 Noncurrent 308,342,672 – 308,342,672 P=396,692,240 P=29,841,421 P=426,533,661
At December 31, 2009: Current P=– P=39,317,102 P=39,317,102 Noncurrent 415,827,304 – 415,827,304 P=415,827,304 P=39,317,102 P=455,144,406
As discussed in Note 5, provision for heavy maintenance pertains to the present value of the estimated contractual obligations of the Company to restore the service concession assets to a specified level of serviceability during the service concession term and to maintain the same assets in good condition prior to turnover of the assets to the Grantor. The amount of provision is reduced by the actual obligations paid for heavy maintenance of the service concession assets.
Other provisions consist of estimated liabilities for certain fees under the STOA and O&M entered into by the Company (see Notes 2 and 18).
17. Long-term Debt
This account consists of borrowings of MNTC:
2010 2009 Peso-denominated Notes and Loans: Fixed Rate Corporate Notes (FXCN) P=5,335,000,000 P=5,390,000,000 Philippine National Bank Loan (PNB) 2,100,000,000 577,000,000 Asian Development Bank (ADB) Direct
Loan (ADB Direct) 435,454,674 1,010,745,000 Total (Carried Forward) 7,870,454,674 6,977,745,000
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2010 2009 Total (Brought Forward) P=7,870,454,674 P=6,977,745,000 U.S. Dollar-denominated Loans: USD Bank Facility (USD) 616,006,080 835,711,762 ADB Complementary Finance Scheme
(ADB-CFS) 384,300,597 – Credit Agricole Corporate and Investment Bank
(formerly Calyon S.A. Corporate and Investment Bank) (COFACE) 314,945,870 389,824,988
Export Finance and Insurance Corporation (EFIC) 308,096,178 391,128,750 1,623,348,725 1,616,665,500 9,493,803,399 8,594,410,500 Less unamortized debt issue costs 139,470,924 226,995,394 9,354,332,475 8,367,415,106 Less current portion of long-term debt - net of
unamortized debt issue costs of P=42,424,751 in 2010 and P=59,339,731 in 2009 2,176,378,648 579,529,269
P=7,177,953,827 P=7,787,885,837
As of December 31, 2010 and 2009, the unamortized debt issue costs incurred in connection with the availment of long-term debt, amounting to P=139.5 million and P=227.0 million, respectively, were deducted against the long-term debt. The movements in debt issue costs are as follows:
2010 2009 Balance at beginning of year P=226,995,394 P=319,769,394 Amortization during the year* (see Note 24) (206,237,216) (90,736,022) Debt issue costs incurred during the year 122,343,370 6,472,318 Foreign exchange adjustments (3,630,624) (8,510,296) Balance at end of year P=139,470,924 P=226,995,394 * Includes amortization of debt issue costs capitalized to service concession assets amounting to P=667,833 and P=492,203 in 2010 and 2009, respectively.
In 2001, MNTC entered into a Common Terms Agreement (CTA) with the lenders, the security trustee, the co-security trustee and inter-creditor agent. The CTA specifies the mechanics on the funding under the term facilities, payment and prepayments, as well as the conditions precedent to drawdown set forth by the secured lenders. The CTA also contains covenants concerning restrictions with respect to, among others, waiver, modification, amendment or assignment of the key project agreements, hedge agreements, restricted payments, and the maximum debt-to-base equity ratio and the level of the debt-service-coverage ratio. Total financing facility availed by MNTC under the original CTA amounted to US$252.2 million.
The loans were granted under a limited-recourse project finance structure. Substantially all existing and future assets of MNTC are mortgaged in favor of the lenders in line with the requirements of the Mortgage, Assignment and Pledge Agreement, known as the Master Security Agreement (MSA). In addition, MPTDC and Egis Projects S.A. (Egis) provided completion support as agreed under the Sponsor Support Agreement (SSA).
On November 8, 2006, MNTC refinanced its outstanding loans through partial prepayment and restructuring of MNTC’s U.S. dollar-denominated long-term debt using the proceeds of a P=5.5 billion FXCN issue. The refinanced debt package consisted of a total of US$100.0 million in U.S. dollar term loan facilities participated in by majority of the original project lenders and a P=5.5 billion FXCN issue participated in by 16 qualified local institutional investors (Issuer).
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The aggregate U.S. dollar term loan facilities consist of direct loan facilities from multi-lateral and bilateral institutions like ADB and EFIC and syndicated facilities, including a covered loan from COFACE, the French export credit agency, participated in by a mix of four foreign commercial banks. The loans are payable in 16 equal semi-annual installments starting December 15, 2006 up to June 15, 2014 which is the original maturity date.
The FXCNs are payable within seven years from issue date under a bullet-like structure, i.e., 94% of the principal is payable on maturity date (November 17, 2013) while the balance of 6% is payable over the term of the notes in minimal annual installments. The simultaneous prepayment and drawdown on refinancing date (November 17, 2006) was facilitated through a US$96 million Conversion Bridge Facility (Bridge Loan) provided by Mizuho Corporate Bank, Ltd. (Singapore). This was a cash-secured temporary dollar facility backed by the FXCN proceeds that allowed MNTC to obtain the necessary dollars for the lump sum prepayment on refinancing date. The Bridge Loan was fully paid on December 5, 2006. Under the Notes Purchase Agreement covering the FXCN, the Issuer may at its option redeem the notes prior to the maturity date in whole but not in part subject to the terms and conditions of the agreement. The interest rate is fixed at 9.75% per annum.
In connection with the refinancing, the CTA, MSA and other loan agreements were amended to reflect the revised covenants and security package covering all MNTC’s debt on a parri-passu basis. The major amendments are: (a) the removal of pledge of shares and other forms of sponsor support in the security package; (b) the release of trapped cash in the form of maintenance reserves, the principal portion of the debt reserve, and undrawn base equity contributions; (c) the reduction of assigned contracts; (d) the removal of assignment of operator assets and contracts as well as PNCC rights under certain contracts; and (e) the relaxation of the loan covenants. Certain agreements like the SSA were terminated and the sponsor guarantees along with other elements of the original security package were released effective November 17, 2006.
On November 13, 2008, MNTC entered into an amendment agreement to the CTA to reflect the replacement of FPHC by MPIC as project sponsor. On January 19, 2009, the CTA was further amended mainly to incorporate the option to convert the ADB Direct Loan from U.S. dollar to Philippine peso which took effect on March 11, 2009. As a result of the conversion, MNTC recognized a loss on extinguishment of debt amounting to P=9.9 million and is included in the “Other expense” account in the 2009 consolidated statement of income (see Note 25).
On March 16, 2009, MNTC also entered into a seven-year term loan agreement for a facility amount of P=2.1 billion with PNB to finance the project cost of Segment 8.1. The PNB Loan qualified as senior debt which entitles the lender to share in the same security package as Phase I lenders. On November 22, 2010, the interest rate of the PNB Loan was amended from fixed to floating rate based on a six-month Philippine Dealing System Treasury Fixing (PDSTF) plus a spread of 0.50%. As of December 31, 2010 and 2009, loan drawdowns on the facility amounted to P=2.1 billion and P=577.0 million, respectively.
On April 27, 2009, MNTC entered into a credit agreement with Security Bank for a standby letter of credit (SBLC) facility of up to P=100.0 million for a period of 24 months to secure MNTC’s Segment 8.1 construction obligation in favor of the TRB. The letter of credit for an amount of P=80.3 million was issued effective April 27, 2009. The substantial completion of Segment 8.1 triggered the reduction of the face value of the SBLC to P=3.8 million as of December 31, 2010. There were no availments on the letter of credit as of December 31, 2010 and 2009.
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Interest rates on direct U.S. Dollar loan facilities, consisting of fixed rates, range from 8.03% to 8.25% in 2010 and 2009. Interest rates on syndicated U.S. Dollar loan facilities, consisting of fixed and floating rates, range from 3.39% to 6.13% in 2010 and 4.0% to 6.13% in 2009.
Interest rate on PNB Loan is fixed at 9.61% in 2009. This was converted to floating interest rate upon re-pricing on December 15, 2010. Interest rates range from 2.16% to 9.61% in 2010.
Interest rate on ADB Direct is floating based on Philippine Interbank Reference Rate (PHIREF) plus a margin of 4.66% in 2010 and 2009.
The security for the outstanding loans is embodied in the following agreements:
a. Trust and Retention Agreement (TRA) with the secured lenders’ designated trustees and the inter-creditor agent. The TRA provides for the establishment and regulation of the security accounts and the security account collateral where the inflows and outflows of project revenues may be monitored. The security accounts form part of “Cash and cash equivalents” account in the consolidated balance sheets.
b. The MSA which grants to the trustees, on behalf of the secured lenders, the security interest in MNTC’s various assets. The agreement provides for the establishment of real estate mortgage and chattel mortgage as well as the assignment of key project agreements, insurances, and bank accounts and investments in favor of the co-security trustee for the benefit of the secured lenders.
On December 7, 2010, MNTC issued an irrevocable prepayment notice indicating MNTC’s firm intention to prepay in full all outstanding amounts under the U.S. Dollar loan facilities and ADB Direct loan on January 14, 2011. The costs and fees incurred for the prepayment of the U.S. Dollar loan facilities and ADB Direct loan amounting to P=103.9 million was included as part of the amortized cost of the loans.
On December 21, 2010, MNTC entered into a Notes Facility Agreement with local financing institutions for a P=2.7 billion short-term unsecured and subordinated notes facility. Proceeds of the notes which were fully drawn on January 11, 2011 were used for the prepayment of the U.S. Dollar loans and other corporate purposes. The notes are payable every three months, up to a maximum term of one year from initial drawdown date.
As of December 31, 2010 and 2009, MNTC is in compliance with the required financial ratios and other loan covenants.
18. Related Party Transactions
Enterprises and individuals that directly, or indirectly through one or more intermediaries, control, or are controlled by, or under common control with the Company, including holding companies, subsidiaries and fellow subsidiaries are related entities of the Company. Associates and individuals owning, directly or indirectly, an interest in the voting power of the Company that gives them significant influence over the enterprise, key management personnel, including directors and officers of the Company and close members of the family of these individuals and companies associated with these individuals also constitute related entities.
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The following table provides the total amount (in thousands) of significant transactions with related parties for the relevant year:
Name Relationship
Management Income
(see Note 25)
Guarantee Income
(see Note 25)
Interest Income
(see Note 23)
Income from Utility
Facilities (see Note 25)
Operator’s Fee
(see Note 20) PNCC Fee
(see Note 20)
Repairs and
Maintenance (see Note 20)
Outside Services
(see Note 21)
Management Fees
(see Note 21) Rentals
(see Note 21) TMC 2010 Associate P=56,000 P=23,256 P=10,899 P=– P=1,339,567 P=– P=– P=– P=– P=– 2009 50,603 18,453 16,456 – 1,338,522 – – – – – 2008 14,400 18,352 21,805 – 1,376,004 – – – – –
PNCC 2010 Non-controlling Stockholder – – – – – 348,358 – – – –
2009 – – – – – 291,872 – – – – 2008 – – – – – 276,432 – – – –
Egis Projects Philippines, Inc. (EPPI) 2010 Affiliate – – – – – – 24,280 – – –
2009 – – – – – – 27,785 – – – 2008 – – – – – – 28,733 – – – Easytrip Services
Corporation (ESC) 2010 Affiliate – – – – – – – 24,072 – – 2009 – – – – – – – 19,152 – – 2008 – – – – – – – 11,400 – –
SMART Comunications, Inc. (SMART) 2010 Affiliate – – – – – – – – 21,130 –
2009 – – – – – – – – 18,840 – 2008 – – – – – – – – – –
PLDT 2010 Affiliate – – – 63,422 – – – – – 981 2009 – – – – – – – – – 358 2008 – – – – – – – – – –
Others 2010 Affiliate – – – – – – – – – – 2009 – – – – – – – – – – 2008 – – 7,865 – – – – – – 1,023 Total 2010 P=56,000 P=23,256 P=10,899 P=63,422 P=1,339,567 P=348,358 P=24,280 P=24,072 P=21,130 P=981 2009 50,603 18,453 16,456 – 1,338,522 291,872 27,785 19,152 18,840 358 2008 14,400 18,352 29,670 – 1,376,004 276,432 28,733 11,400 – 1,023
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Transactions with Stockholders
§ In 2009, MPTC applied its P=65.3 million cash advances to MPIC against its dividend payable as of December 31, 2008 (see Note 19). Moreover, in 2010 and 2009, MPIC charged MPTC for various operating expenses paid in behalf of the Company.
§ Based on the Agreement between BHC, FPHC, MPTC and MPTDC dated November 7, 2008, the outstanding advances of BHC and FPHC from MPTC as of June 30, 2008 amounting to P=103.2 million and P=107.9 million, respectively, were offset against dividends declared by MPTC on October 16, 2008. The remaining dividend share of BHC and FPHC amounting to P=412.6 million and P=429.0 million, respectively, were also applied to BHC and FPHC advances from MPTDC, which were assigned to MPTC.
Moreover, MPIC has assumed the obligation of BHC and FPHC to pay MPTDC advances amounting to P=237.2 million and P=225.4 million, respectively, pursuant to the SPA executed by BHC and FPHC with MPIC (see Note 1). As of December 31, 2010 and 2009, outstanding receivable from MPIC amounted to P=462.6 million.
Transactions with an Associate
§ TMC provides services as operator to the NLE and Segment 7 under the O&M. The O&M contains the terms and conditions for the operation and maintenance by TMC of Phase I of the NLE and subsequently, of Segment 7, and sets forth the scope of its services. TMC is assisted by Egis Road Operation Philippines as service provider in accordance with the Technical Assistance Agreement (TAA). Under the O&M, MNTC pays TMC a minimum fixed annual amount currently set at P=637.1 million for the NLE and P=40.6 million for Segment 7, to be escalated on a quarterly basis plus a variable component, which will take effect upon start of commercial operations. The O&M, which also provides for certain bonuses and penalties as described in the O&M, shall be effective for the entire service concession period.
On May 7, 2010, MNTC and TMC agreed to reduce, effective on February 11, 2010, the minimum fixed annual amount from P=637.1 million to P=605.4 million for the NLE and from P=40.6 million to P=38.8 million for Segment 7 in view of the expiration of the TAA on February 10, 2010 and due to the reduction of six Point of Sales facilities being operated and maintained by TMC.
Moreover, on May 27, 2010, pursuant to the O&M and the TRB’s approval to integrate the operations period of Phase I and Segment 8.1, portion of Phase II of the Project, and to extend the concession term, MNTC and TMC agreed to extend the O&M to cover Segment 8.1 from June 1, 2010 until December 31, 2037. Consequently, MNTC agreed to pay TMC an annual base fee for the operations and maintenance of Segment 8.1 in the amount of P=33.6 million effective in June 2010. The fee for Segment 8.1 is also subject to escalation on a quarterly basis plus a variable component.
§ On April 15, 2003, MNTC has agreed to make available to TMC a financing facility under the Operator Equipment Loan Agreement (OELA) with an aggregate principal amount not exceeding US$5.0 million for the acquisition of the equipment together with minor items of equipment or plant as may be reasonably required for the performance of the contracted services and for payment of deposits required for utilities. TMC has availed of the entire US$5.0 million from the facility. Interest rate is at London Inter-Bank Offered Rate (LIBOR) plus 1% per annum.
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On June 17, 2004, the OELA was superseded whereby TMC agreed and undertook to repay, in a one lump sum payment, the loan less the book value of any operator’s equipment returned to MNTC on the last day of the term of the O&M, which is at the end of the service concession period. In 2009, TMC made full payment of the operator equipment loan.
§ Two separate agreements on the shareholders’ corporate guarantee (collectively, “Corporate Guarantees”) were executed by MPTDC and Egis Road Operation (collectively known as “Guarantors”) with MNTC, whereby each has guaranteed the liability of TMC under the O&M in the following percentages: MPTDC – 66.0% and Egis Road Operation – 34.0%. As a consideration for the guarantee, TMC shall pay MPTDC and Egis Road Operation, annual guarantee fees equal to 2.5% of the gross value of the corporate guarantee. Any guarantee fee not paid within June 30 and December 31 of each year (“the Payment Dates”) shall earn interest computed from the relevant Payment Date up to the date of actual payment of guarantee fees. Interest is at 91-day Philippine Treasury Bill Rate plus 2% per annum as defined in the O&M.
The Company recognized a receivable from TMC equivalent to the financial guarantee obligation recorded as the present value of the guaranteed portion of the liability of TMC under the O&M. The guarantee is effective until December 31, 2037, which is the end of the service concession term. Receivable on financial guarantee from TMC, recorded under “Due from related parties (noncurrent),” and the financial guarantee obligation amounted to P=65.4 million and P=65.6 million as of December 31, 2010 and 2009, respectively. Interest income on receivable from TMC and interest expense on financial guarantee obligation amounted to P=10.9 million in 2010, P=12.4 million in 2009 and P=10.8 million in 2008 (see Notes 23 and 24).
§ In 2008, TMC appointed MPTDC to perform management and financial services for a fixed monthly fee of P=1.2 million for a period of 12 months. The management contract between TMC and MPTDC was not subsequently renewed. In 2009, MPTC replaced MPTDC to perform management and financial services for TMC. In 2010, the Company billed TMC for P=56.0 million for managerial and financial advisory services. The Company and TMC are in the process of formalizing the management agreement. Total management fees amounted to P=56.0 million in 2010, P=50.6 million in 2009 and P=14.4 million in 2008 (see Note 25).
Transactions with Non-controlling Stockholders
§ In consideration of the assignment by PNCC of its usufructuary rights, interests and privileges under its franchise, PNCC is entitled to receive a payment equivalent to 6.0% and 2.0% of the toll revenue from the NLE and Segment 7, respectively. Any unpaid balance carried forward will accrue interest at the rate of the latest Philippine 91-day treasury bill rate plus 1% per annum. This entitlement, as affirmed in the Shareholders’ Agreement (SA), shall be subordinated to operating expenses and the requirements of the financing agreements and shall be paid out subject to availability of funds. In December 2006, MNTC entered into a letter agreement with PNCC to set out the detailed procedure for the payment.
The PNCC franchise expired in May 2007. However, since the payment is a continuing obligation under the SA, PNCC continues to receive payment.
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Prior to the letter of TRB, MNTC has been remitting payments directly to PNCC on a semi-annual basis. On December 2, 2010, MNTC received a letter from the TRB dated November 30, 2010, citing a decision of the SC dated October 19, 2010 directing MNTC to remit forthwith to the National Treasury, through TRB, all payments representing PNCC’s percentage share of the toll revenues and dividends, if any, arising out of PNCC’s participation in the NLE Project. In the said decision, the SC ruled, among others, that after the expiration of the franchise of PNCC, its share/participation in the JVAs and STOAs, inclusive of its percentage share in toll fees collected by joint venture companies currently operating the expressways, shall accrue to the Philippine Government.
On the basis of the conflicting claims of PNCC and TRB to the revenue share and dividends, on December 8, 2010, MNTC filed a motion for clarification asking the SC to clarify the entity to which MNTC should remit its payments which was then due on December 20, 2010. Pending resolution by the SC of the motion for clarification, and pursuant to a BOD resolution dated December 23, 2010, MNTC filed a petition for consignation with the Regional Trial Court (RTC) of Caloocan for the latter to hold the payments in trust and deliver to the party ultimately adjudged by the SC to be entitled to it, unless PNCC and the TRB, in the meantime, resolve the matter between themselves, in which the case the funds should be delivered and disposed of pursuant to their agreement and settlement.
On December 29, 2010, MNTC through a letter sent by its legal counsel, informed PNCC and TRB of the consignation made to the RTC of Caloocan. Morover , in a resolution dated January 18, 2011, the SC directed MNTC to remit to the National Treasury PNCC’s percentage share of toll revenues and dividends arising out of PNCC’s participation in the NLE project.
§ In 2010, 2009 and 2008, MNTC paid cash dividends to non-controlling stockholders amounting to P=505.3 million, P=329.7 million and P=543.4 million, respectively. As of December 31, 2010 and 2009, MNTC has unpaid dividends to a non-controlling shareholder amounting to P=181.7 million and P=143.6 million, respectively.
Transactions with Other Related Parties
§ On March 27, 2009, MNTC has entered into an agreement with EPPI, a wholly owned subsidiary of Egis, a non-controlling stockholder, for the Fixed Operating Equipment (FOE) Design, Supply and Installation for Segment 8.1 project. The contract on the said date set the terms and conditions for the delivery, installation and tests on completion of the FOE of Segment 8.1 project. The contract price amounted to P=148.4 million, a fixed lump sum price and valid for four hundred twenty-five (425) days from the Base Date.
The Construction Notice to Proceed was issued by MNTC to EPPI on March 30, 2009 and the front end design works commenced on April 6, 2009. The installation of the FOE has been substantially completed as of June 5, 2010. There were no unapplied mobilization advances as of December 31, 2010. As of December 31, 2009, unapplied mobilization advances to EPPI, included as part of “Advances to contractors and consultants” account in the consolidated balance sheet amounted to P=18.8 million.
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§ In September 2007, MNTC entered into a contract with EPPI for FOE second line maintenance services. This contract pertains to services beyond the primary maintenance obligations of TMC under the O&M. The contract amount up to September 2010 is €1.2 million. Total services paid amounted to €0.4 million (P=26.4 million) in 2010 and €0.4 million (P=26.8 million) in 2009.
On December 3, 2010, MNTC and EPPI entered into a Supplemental Agreement for NLE and Phase II Segment 8.1 FOE second line maintenance services to extend the term for another three years starting in September 2010. The contract amount up September 2013 is €1.2 million.
§ In May 2009, MNTC entered into a Systems Upgrade contract with EPPI for modification and upgrade of computer systems and an account management system in respect of the toll control system of the NLE. The contract amount is €0.2 million (P=11.2 million). The installation and site acceptance test was completed in August 2010.
§ MNTC purchased spare parts inventories from EPPI. Total purchases amounted to P=15.7 million in 2010 and P=15.0 million in 2009.
§ In 2009, MPTC entered into a five-year lease agreement with PLDT, an associate of FPC, from August 13, 2009 to August 14, 2014 covering certain office units and parking spaces for a monthly payment of P=0.1 million, subject to annual escalation of 5%. The lease agreement may be terminated at the option of the parties. As of December 31, 2010 and 2009, there is no outstanding liability to PLDT.
Future minimum operating lease payments are as follows:
Period Covered 2010 2009 Not later than one year P=1,051,658 P=1,001,579 More than one year and not later than five years 3,024,586 3,315,353 More than five years – 760,891
§ SMART, an associate of FPC, billed MPTC for management fees amounting to P=21.1 million and P=18.8 million in 2010 and 2009, respectively. The agreement on the billing of management fees was terminated effective on May 31, 2010. There is no outstanding payable to SMART as of December 31, 2010. As of December 31, 2009, the outstanding payable to SMART amounted to P=2.0 million included under “Accounts payable and other current liabilities.” There is no outstanding payable as at December 31, 2010.
§ On December 5, 2007, MNTC engaged the services of ESC, a wholly owned subsidiary of Egis, to assist the Company in increasing the usage of the electronic toll collection (ETC) facility along the NLE which ended on April 30, 2010. On November 24, 2010, MNTC and ESC signed the Supplemental Agreement to the Service Agreement extending the services of ESC for another eight years effective on May 1, 2010 with a five year extension. In accordance with the Supplemental Agreement, MNTC will pay ESC an annual fixed fee of P=14.0 million for Class 1 vehicles and annual fixed fee of P=5.0 million for Class 2 and 3 vehicles, which are to be maintained and escalated every year for labor index and consumer price index (CPI). MNTC shall also pay for variable fees of P=0.75 and P=2.5 per transaction for Class 1 vehicles depending on the number of transactions achieved during the year compared with prior year; and P=3 and P=4 per transactions for Class 2 and 3, respectively.
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§ On March 17, 2010, MNTC and PLDT entered into an agreement with respect to the commercial aspect of the Utility Facilities Contract for the Fiber Optic Overlay along Phase I of the NLE which is currently being negotiated between MNTC and PLDT. Pending the final contract, in March 2010, PLDT already paid P=52.2 million for one-time exclusivity fee and one-time access fee and P=1.3 million for annual fee for the year ended December 31, 2010.
In December 2010, MNTC also billed PLDT P=9.8 million for one-time access fee and one-time exclusivity fee and P=0.1 million for the annual fee for the Fiber Optic Overlay along Phase II Segment 8.1 (see Notes 9). Total income amounting to P=63.4 million for the year ended December 31, 2010 is recorded under “Income from utility facilities” account (see Note 25). There is no income from utility facilities in 2009.
As of February 23, 2011, MNTC and PLDT are in the process of finalizing the Utility Facilities Contract.
§ As of December 31, 2010, MSIHI has outstanding noninterest-bearing cash advances from Metro Pacific Corporation (MPC) amounting to P=1.5 million mostly to cover various operating charges.
§ The Company has lease contracts with First Philippine Realty Corporation (FPRC), a wholly owned subsidiary of FPHC, former stockholder, for the lease of office space and parking lots for three years which commenced on December 31, 2003 and for one year which commenced on February 28, 2006. The three-year and one-year contracts were subsequently extended up to December 31, 2007 and February 28, 2008, respectively, unless renewed by the parties or pre-terminated as provided in the contracts. After December 31, 2007, the three-year contract was no longer renewed. The one-year contract was finally terminated on October 31, 2008.
§ Compensation of key management personnel of the Company are as follows:
2010 2009 2008 Short-term employee benefits P=111,746,162 P=94,013,308 P=104,892,282 Retirement costs (see Note 22) 6,237,236 3,285,893 10,167,899 Executive stock option expense
(see Note 22) 1,949,447 – – Termination benefits – – 4,279,022 P=119,932,845 P=97,299,201 P=119,339,203
§ The Company acts as a surety or co-obligor with certain Company officers for the payment of their obligations that may arise from the use of corporate credit cards at specified approved amounts ranging from P=0.1 million to P=0.3 million.
§ The Company paid its directors amounting to P=2.6 million, P=0.9 million and P=7.5 million in 2010, 2009 and 2008, respectively, recorded under “General and administrative expenses” account in the consolidated statements of income.
In the normal course of business, the Company also grants and avails noninterest-bearing advances to/from subsidiaries, associates and affiliates.
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Outstanding balances of receivables from/payables to related parties are carried in the consolidated balance sheets under the following accounts:
Name Receivables (see Note 9)
Advances to Contractors and
Consultants Due from
Related Parties Due to
Related Parties MPIC 2010 P=– P=– P=462,638,616 P=101,618 2009 – – 462,638,616 1,161,145 MPC 2010 – – – 1,581,519 2009 – – – – EPPI 2010 – – 15,282,073 2009 – 27,020,929 – 1,326,745 PNCC 2010 – – – 32,366,834 2009 – – – 29,667,682 TMC 2010 – – 125,672,577 260,422,318 2009 – 50,000 142,736,879 281,734,401 ESC 2010 – – 9,590,962 16,502,167 2009 – – 72,457 13,425,500 PLDT 2010 11,083,611 – – – 2009 – – – – Others 2010 – – – 3,519,238 2009 – – – 269,563 Total 2010 P=11,083,611 P=– P=597,902,155 P=329,775,767 2009 – 27,070,929 605,447,952 327,585,036
At December 31, 2010: Current P=11,083,611 P=– P=532,488,688 P=329,775,767 Noncurrent – – 65,413,467 – P=11,083,611 P=– P=597,902,155 P=329,775,767
At December 31, 2009: Current P=– P=27,070,929 P=539,878,935 P=327,585,036 Noncurrent – – 65,569,017 – P=– P=27,070,929 P=605,447,952 P=327,585,036
Other than the operator equipment loan, all amounts due to and from related parties are noninterest-bearing. The operator equipment loan was fully paid by TMC in 2009.
Outstanding balances at year-end are unsecured and settlement occurs in cash for the outstanding due from/to related parties, while advances to contractors and consultants will be applied to future services rendered. As of December 31, 2010 and 2009, the Company has not made any provision for doubtful accounts relating to amounts owed by related parties.
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19. Equity
Capital Stock As of December 31, 2010, 2009 and 2008, the capital stock of the Company consists of:
Issued capital stock P=5,065,074,937 Subscribed capital stock 495,690 Less subscriptions receivable 371,768 123,922 P=5,065,198,859
Movements in shares of stock of MPTC follow:
Number of Shares December 31 2010 2009 2008 Authorized - P=1 par value 5,400,000,000 5,400,000,000 5,400,000,000
Issued and outstanding: Balance at beginning of year 5,065,074,937 5,065,074,937 94,504,310 Reclassification from subscribed
to issued shares – – 4,970,570,627 5,065,074,937 5,065,074,937 5,065,074,937 Treasury shares (87,020,160) (87,020,160) (87,020,160) Balance at end of year 4,978,054,777 4,978,054,777 4,978,054,777
Subscribed: Balance at beginning of year P=495,690 P=495,690 P=4,971,066,317 Reclassification from subscribed
to issued shares – – (4,970,570,627) Balance at end of year P=495,690 P=495,690 P=495,690
a. On July 23, 2008, the BOD of MPTC made a call for the payment of unpaid subscriptions and stockholders were given until August 29, 2008 to fully pay their subscriptions. As of December 31, 2010, the subscriptions were not yet paid in full.
b. On October 16, 2008, the BOD of MPTC authorized the repurchase of 87,020,160 shares from Lopez, Inc. at the price of P=2.22 per share or a total amount of P=193.6 million. Consequently, a Deed of Absolute Sale was executed and an application for a special block sale was filed with the PSE on October 20, 2008. On October 22, 2008, the PSE approved the block sale.
c. On October 29, 2008, the PSE approved the listing of 4,970,570,627 shares subscribed by FPHC and BHC on September 17, 2007.
d. The Company’s shares of stock are pledged in favor of a local bank as security for MPIC’s peso-denominated notes of P=6,750.0 million. As of December 31, 2010 and 2009, the notes are still outstanding.
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Cash Dividends On February 17 and August 24, 2010, MPTC’s BOD declared cash dividends of P=0.15 per share or a total amount of P=746.7 million and P=0.089 or a total amount of P=445.0 million to all stockholders of record as of March 5 and September 9, 2010, respectively. As of December 31, 2010, the cash dividends have been fully paid.
On February 23, 2011, MPTC’s BOD declared cash dividends of P=0.152 per share or a total amount of P=755.0 million to all stockholders of record as of March 11, 2011 payable on or before April 6, 2011.
On July 31, 2009, MPTC’s BOD declared cash dividends of P=0.09 per share or a total amount of P=450.0 million to all stockholders of record as of August 14, 2009. As of December 31, 2009, the cash dividends have been fully paid.
On October 16 and December 17, 2008, MPTC’s BOD declared cash dividends of P=0.21 per share or a total amount of P=1,054.4 million and P=0.09 per share or a total amount of P=450.0 million to all stockholders of record as of October 30 and December 17, 2008, respectively. As of December 31, 2008, the Company has unpaid dividends amounting to P=450.0 million. During the year ended December 31, 2009, the Company settled its dividends payable through cash payment of P=384.7 million and application of its P=65.3 million cash advances to MPIC (see Note 18).
Scrip Dividends Under Section 8.04.02 of the Amended SA with among others Leighton International Limited (LIL), MPTC, through MPTDC, has the right to receive from LIL 50.0% of the difference of LIL’s selling price for the sale of its 16.5% interest in MNTC and US$19.4 million, provided that any payment of LIL to MPTDC shall not exceed US$4.4 million. Such MNTC shares held by LIL were previously purchased from MPTDC.
On November 12, 2009, LIL sold the shares to a third party and thereby paid the amount of US$4.4 million (P=203.9 million) to MPTDC which the latter recognized as additional gain from the previous sale of MNTC shares to LIL and was included as part of the “Other income” account in the consolidated statement of income (see Note 25). In view of this, the Company recognized the scrip dividends declared in 2008 payable to all stockholders of record as of October 30, 2008 giving the stockholders the right to receive a proportionate share in the amounts that maybe received by MPTC, through MPTDC, from LIL pursuant to the Amended SA. The scrip dividends declared by MPTC amounted to US$3.9 million (P=181.5 million), net of capital gains tax. As of December 31, 2010 and 2009, unpaid scrip dividends amounted to P=0.3 million and is included under the “Dividends payable” account.
Pursuant to a BIR confirmation letter dated November 10, 2009, MPTDC paid capital gains tax of P=21.0 million for the US$4.4 million (P=203.9 million) received from LIL (see Note 26).
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20. Cost of Services
This account consists of:
2010 2009 2008 Toll operation and maintenance
costs P=2,023,834,358 P=2,116,737,193 P=2,084,514,246 Amortization of service
concession assets (see Note 12) 559,180,335 505,052,189 553,602,687
Cost of inventories 568,060 1,076,254 3,950,403 P=2,583,582,753 P=2,622,865,636 P=2,642,067,336
Toll operation and maintenance costs consist of:
2010 2009 2008 Operator’s fee (see Note 18) P=1,339,566,588 P=1,338,521,926 P=1,376,004,457 PNCC fee (see Note 18) 348,358,026 291,871,747 276,432,182 Repairs and maintenance
(see Note 18) 202,939,397 218,726,899 115,242,564 Provision for heavy maintenance
(see Note 16) 54,911,915 204,538,073 251,669,149 Insurance 43,511,555 42,172,410 41,374,274 Toll collection and medical
services 21,331,200 20,906,138 21,935,164 TRB supervision fees – – 1,856,456 Others 13,215,677 – – P=2,023,834,358 P=2,116,737,193 P=2,084,514,246
21. General and Administrative Expenses
This account consists of:
2010 2009 2008 Provision for potential losses
on input VAT (see Note 5) P=334,069,949 P=1,104,632,613 P=– Salaries and employee benefits
(see Notes 18 and 22) 243,448,382 210,558,831 220,985,057 Professional fees 72,813,068 48,984,438 77,955,888 Taxes and licenses 64,249,225 57,046,876 27,173,769 Advertising and marketing
expenses 50,493,216 44,190,871 38,147,669 Outside services (see Note 18) 38,981,888 42,128,348 34,327,875 Representation and travel 33,477,382 25,572,040 27,052,980 Depreciation (see Note 11) 29,629,639 33,661,057 27,099,763 Provisions (see Note 16) 29,051,247 10,390,532 – Management fees (see Note 18) 21,129,665 18,839,501 5,501,935 Communication, light and water 9,996,294 7,210,221 7,979,788
(Forward)
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2010 2009 2008 Collection charges P=6,716,137 P=6,583,365 P=6,983,467 Repairs and maintenance 6,075,911 5,429,054 4,089,617 Office supplies 4,708,858 6,364,831 6,359,163 Training and development costs 2,600,075 1,472,011 9,664,454 Directors fees (see Note 18) 2,596,584 891,600 7,520,397 Rentals (see Note 18) 1,357,533 423,684 1,362,166 Donations and contributions 22,111 2,000,000 3,458,513 Write-off of input VAT
(see Note 5) – 94,271,475 – Miscellaneous 39,179,219 14,040,542 12,275,613 P=990,596,383 P=1,734,691,890 P=517,938,114
22. Retirement Costs and Share-based Payment
Retirement Costs MNTC has an unfunded and a funded noncontributory defined benefit retirement plans, respectively, covering all of its regular and full time employees. The plan provides for a lump sum benefit payment upon retirement. Contributions and costs are determined in accordance with the actuarial study made for the plan which is normally obtained every two years.
In 2008, MPTDC’s retirement plan was pre-terminated in relation to the acquisition of MPIC of MPTC. Total benefits paid on settlement amounted to P=2.3 million in 2008.
The following tables summarize the components of provision for retirement costs, included in “Salaries and employee benefits” under “General and administrative expenses” account in the consolidated statements of income and “Accrued retirement costs” account in the consolidated balance sheets.
2010 2009 2008 Components of provision for
retirement costs: Current service cost P=5,680,909 P=1,003,805 P=6,449,595 Interest cost 3,790,217 5,567,280 3,374,532 Expected return on plan
assets (1,778,791) (962,743) (276,770) Net actuarial gain recognized
during the year (308,775) (1,066,060) – Loss on settlement of plan – – (199,487) P=7,383,560 P=4,542,282 P=9,347,870
Accrued retirement costs: Balance at beginning of year P=9,612,991 P=14,481,842 P=25,805,287 Provision for retirement costs
for the year 7,383,560 4,542,282 9,347,870 Contribution during the year (16,122,937) (9,411,133) (18,411,898) Benefits paid – – (2,259,417) P=873,614 P=9,612,991 P=14,481,842
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Movements in the present value of retirement obligation (PVRO) are as follows:
2010 2009 2008 Balance at beginning of year P=35,455,729 P=14,822,369 P=32,833,064 Current service cost 5,680,909 1,003,805 6,449,595 Interest cost 3,790,217 5,567,280 3,374,532 Benefits paid (8,526,589) (4,450,710) (2,259,417) Actuarial loss (gain) 31,681,869 18,512,985 (25,575,405) Balance at end of year P=68,082,135 P=35,455,729 P=14,822,369
Changes in fair value of plan assets (FVPA) are as follows:
2010 2009 2008 Balance at beginning of year P=35,575,826 P=24,068,574 P=4,258,003 Expected return on plan assets 1,778,791 962,743 276,770 Contribution during the year 16,122,937 9,411,133 18,411,898 Benefits paid (8,526,589) (4,450,710) – Actuarial gain 2,302,692 5,584,086 1,121,903 Balance at end of year P=47,253,657 P=35,575,826 P=24,068,574
The actual return on plan assets amounted to P=4.1 million in 2010, P=6.5 million in 2009 and P=1.4 million in 2008. The Company expects to contribute P=26.2 million to its defined benefit retirement plan in 2011.
The major categories of plan assets as a percentage of the fair value of total plan assets follow:
2010 2009 2008 Investments in: Government securities 71.39% 39.78% 45.25% Perpetual preferred shares 13.26% 16.85% 24.86% Loans/notes receivable 7.84% 22.36% – Cash in banks 7.13% 20.10% 28.51% Receivables and others 0.38% 0.91% 1.38% 100.00% 100.00% 100.00%
The plan assets are maintained in a trust account with a local bank that was set up by the Company in November 2006.
The reconciliation of the PVRO to the accrued retirement costs recognized in the consolidated balance sheets follows:
2010 2009 2008 PVRO P=68,082,135 P=35,455,729 P=14,822,369 FVPA (47,253,657) (35,575,826) (24,068,574) Underfunded (Overfunded)
PVRO 20,828,478 (120,097) (9,246,205) Cumulative unrecognized
actuarial gain (loss) (19,954,864) 9,733,088 23,728,047 Accrued retirement costs P=873,614 P=9,612,991 P=14,481,842
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Actuarial gain (loss) in excess of corridor is amortized over the average expected working lives of its eligible employees as follows:
2010 2009 2008 Cumulative unrecognized
actuarial gain (loss) at beginning of year P=9,733,088 P=23,728,047 (P=2,769,774)
Actuarial gain (loss) for the year on:
PVRO (31,681,869) (18,512,985) 25,575,405 FVPA 2,302,692 5,584,086 1,121,903 (19,646,089) 10,799,148 23,927,534 Less actuarial gain recognized
for the year 308,775 1,066,060 – Effect of settlement of plan – – (199,487) Cumulative unrecognized
actuarial gain (loss) at end of year (P=19,954,864) P=9,733,088 P=23,728,047
Cumulative unrecognized actuarial gain (loss) at beginning of year 9,733,088 23,728,047 (2,969,261)
Limit of corridor (3,557,583) (2,406,857) (3,091,224) Actuarial gain outside corridor to
be amortized 6,175,505 21,321,190 – Divided by expected average
remaining service years of eligible employees 20 20 21
Amortization of actuarial gain to be recognized for the year P=308,775 P=1,066,060 P=–
The principal assumptions used to determine accrued retirement costs as of December 31, 2010, 2009 and 2008 are as follows:
2010 2009 2008 Discount rate 8.10% 10.69% 37.56% Rate of increase in compensation 12.00% 10.00% 10.00% Expected rate of return 4.00% 5.00% 4.00%
The overall expected rate of return on plan assets is determined based on the market prices prevailing on that date, applicable to the period over which the obligation is to be settled.
The underfunded (overfunded) status and experience adjustments for the current and previous four years are as follows:
2010 2009 2008 2007 2006 PVRO P=68,082,135 P=35,455,729 P=14,822,369 P=32,833,064 P=22,455,752 FVPA (47,253,657) (35,575,826) (24,068,574) (4,258,003) (4,000,000) Underfunded (Overfunded)
PVRO 20,828,478 (120,097) (9,246,205) 28,575,061 18,455,752 Experience adjustments
on retirement obligation - loss (gain) 6,097,300 700,476 (470,161) 247,229 –
Experience adjustments on plan assets - gain (loss) 2,302,692 5,584,086 1,121,903 (1,997) –
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Share-based Payment On June 24, 2007, the shareholders of MPIC approved a share option scheme (the Plan) under which MPIC’s directors may, at their discretion, invite executives of MPIC upon the regularization of employment of eligible executives, to take up share option of MPIC to obtain an ownership interest in MPIC and for the purpose of long-term employment motivation. The scheme became effective on June 14, 2007 and is valid for ten (10) years. An amended plan was approved by the stockholders on February 20, 2009.
As amended, the overall limit on the number of shares which may be issued upon exercise of all options to be granted and yet to be exercised under the Plan must not exceed 5% of the shares in issue from time to time. The maximum number of shares in respect of which options may be granted under the Plan shall not exceed 5% of the issued shares of MPIC on June 14, 2007 or the date when an event of any change in the corporate structure or capitalization affecting MPIC’s shares occurred, as the case may be.
The exercise price in relation to each option shall be determined by MPIC’s Compensation Committee, but shall not be lower than the highest of: (i) the closing price of the shares for one or more board lots of such shares on the PSE on the option offer date; (ii) the average closing price of the shares for one or more board lots of such shares on the PSE for the five (5) business days on which dealings in the shares are made immediately preceding the option offer date; and (iii) the par value of the shares.
MPIC has granted on July 2, 2010 options in respect of 94,300,000 common shares of MPIC to new directors and senior management officers of MPIC and to selected management committee members of MPIC subsidiaries (includes the Company). The stock options will expire on July 2, 2015. With respect to the stock options granted to MPIC subsidiaries, said stock options will vest as follows: 30% on July 2, 2011; 35% on July 2, 2012; and 35% on July 2, 2013.
A summary of the Company’s stock option activity received from MPIC and related information for the year ended December 31, 2010 follows:
Number
of shares Exercise price Outstanding at January 1, 2010 – P=– Granted during the year 12,200,000 2.73 Exercised during the year – –
Outstanding at December 31, 2010 12,200,000 P=2.73
Exercisable at December 31, 2010 – P=–
No stock option activity was granted to the Company’s officers by MPIC in 2009.
The weighted average remaining contractual life for the share options outstanding as of December 31, 2010 is 4.5 years.
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The fair value of the options granted is estimated at the date of grant using Black-Scholes-Merton formula, taking into account the terms and conditions upon which the options were granted. The following tables list the inputs to the model used for the ESOP in 2010:
30% vesting on
July 2, 2011 35% vesting on
July 2, 2012 35% vesting on
July 2, 2013 Grant date July 2, 2010 Spot price P=2.65 P=2.65 P=2.65 Exercise price P=2.73 P=2.73 P=2.73 Risk-free rate 4.61% 5.21% 5.67% Expected volatility* 69.27% 67.52% 76.60% Term to vesting (in days) 365 731 1,096 * The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is
indicative of future trends, which may also not necessarily the actual outcome.
In 2010, stock options expense, recognized by the Company in “Salaries and employee benefits” account, under General and administrative expenses, amounted to P=1.9 million.
Carrying value of the ESOP, recognized under “Other reserves” in the equity section of the consolidated balance sheet, amounted to P=1.9 million as of December 31, 2010.
23. Interest Income
Sources of interest income follow:
2010 2009 2008 Cash and cash equivalents P=71,602,940 P=54,751,615 P=76,423,039 Investment in bonds 15,290,641 13,004,000 3,668,333 Receivable on financial guarantee*
(see Note 18) 10,899,450 12,354,094 10,753,258 AFS financial assets 9,625,315 – – Loans to related parties (see Note 18) – 4,101,846 18,917,397 Investment in treasury bills 799,731 1,961,429 – Others 1,281,619 79,422 303,896 P=109,499,696 P=86,252,406 P=110,065,923 * Recorded in “Due from related parties” account under noncurrent assets.
24. Interest Expense and Other Finance Costs
Details of interest expense and other finance costs follow:
2010 2009 2008 Interest expense on: Bank loans (see Note 17) P=884,813,687 P=826,413,272 P=806,909,811 Provision for heavy
maintenance (see Note 16) – 16,469,483 – Financial guarantee obligation
(see Note 18) 10,899,450 12,354,094 10,753,258 Other finance costs: Amortization of debt issue costs
(see Note 17) 205,569,383 90,243,819 72,578,692 Lenders’ fees 8,502,273 13,585,347 12,847,050 Bank charges 888,660 744,681 884,062 P=1,110,673,453 P=959,810,696 P=903,972,873
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25. Other Income and Other Expense
Details of other income follow:
2010 2009 2008 Income from utility facilities
(see Note 18) P=63,747,748 P=– P=– Management fee (see Note 18) 56,000,000 50,602,941 14,400,000 Income from toll service facilities 23,839,704 10,119,691 9,440,500 Guarantee fees (see Note 18) 23,255,606 18,453,147 18,352,318 Gain on sale of investment
(see Note 19) – 203,942,145 – Realized gain on derivatives – – 6,718,219 Mark-to-market gain on
derivative assets (see Note 30) – – 46,924,849 Others 8,133,904 9,237,257 9,608,953 P=174,976,962 P=292,355,181 P=105,444,839
For the years ended December 31, 2010 and 2009, the details of other expense follow:
2010 2009 Mark-to-market loss on derivatives P=227,517,489 P=19,219,364 Loss on extinguishment of debt (see Note 17) – 9,895,721 P=227,517,489 P=29,115,085
As a result of the notice of prepayment issued by MNTC in December 2010 to Mizuho, as hedging counterparty, indicating MNTC’s intent to cancel the cross currency and interest rate swap transactions on January 14, 2011, the Company discontinued applying hedge accounting as the hedge no longer meets prospective effectiveness. This resulted to recycling of cumulative mark-to-market loss on derivatives accumulated in equity to consolidated statement of income amounting to P=158.3 million in 2010 (see Note 30).
26. Income Taxes
The provision for current income tax consists of:
2010 2009 2008 Regular corporate income tax
(RCIT) P=31,725,648 P=11,229,495 P=825,544 Final tax on interest income 19,429,155 13,897,062 15,406,536 MCIT 683,101 677,596 1,123,694 Capital gains tax (see Note 19) – 20,983,000 – P=51,837,904 P=46,787,153 P=17,355,774
RCIT is imposed on those taxable income of MNTC not covered by ITH (see Note 31).
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The components of MNTC’s deferred tax assets and liabilities follow:
2010 2009 Deferred Tax Liabilities Difference in amortization method of service
concession assets P=406,391,156 P=318,308,780 Unrealized foreign exchange gains – net 99,258,691 68,954,362 Unamortized realized foreign exchange losses capitalized 24,045,831 24,045,831 Fair value changes on AFS financial assets 7,047,900 – Fair value changes on derivatives charged to
consolidated statement of income – 9,573,145 536,743,578 420,882,118 Deferred Tax Assets Provision for heavy maintenance 106,786,301 111,911,691 Fair value changes on derivatives charged to
consolidated statement of income 61,660,504 – Movement in present value of loans 31,153,367 – Unearned toll revenue 9,295,769 – Fair value changes on derivatives deferred in equity 1,042,778 4,426,370 Allowance for doubtful accounts 1,577,850 – Accrued retirement costs 262,084 2,883,898 Unamortized past service cost 2,810,537 2,810,537 Unamortized preoperating expenses – 13,769,057 214,589,190 135,801,553 Deferred tax liabilities - net P=322,154,388 P=285,080,565
MNTC’s net deferred tax assets and liabilities, on certain temporary differences amounting to P=66.5 million as of December 31, 2009, have not been recognized because these are expected to reverse during the ITH period.
For tax purposes, MNTC used the units of production method of depreciation for roads and tollways as approved by the BIR.
MPTC, MPTDC and MSIHI have the following temporary differences, NOLCO and MCIT for which no deferred tax assets have been recognized since management believes that it is more likely than not that these will not be realized in the future:
2010 2009 NOLCO P=23,958,935 P=18,153,922 Accrued expenses 13,525,292 13,774,563 MCIT 2,239,446 1,906,150 Unrealized foreign exchange loss 65,081 358,337 P=39,788,754 P=34,192,972
As of December 31, 2010, MPTDC and MSIHI have MCIT that can be applied as tax credit against future income tax due under RCIT and NOLCO that can be claimed as deduction from future taxable income as follows:
Year Paid/Incurred Expiration Date MCIT NOLCO 2008 December 31, 2011 P=878,749 P=216,343 2009 December 31, 2012 677,596 218,298 2010 December 31, 2013 683,101 23,524,294 P=2,239,446 P=23,958,935
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The movements in NOLCO are as follows:
2010 2009 Balance at beginning of year P=18,153,922 P=302,342,619 NOLCO from acquisition of subsidiary 634,306 – Additions 23,324,629 – Application – (17,006,602) Expirations (18,153,922) (267,182,095) Balance at end of year P=23,958,935 P=18,153,922
The movements in MCIT are as follows:
2010 2009 Balance at beginning of year P=1,906,150 P=2,466,645 Additions 683,101 677,596 Application – (244,945) Expirations (349,805) (993,146) Balance at end of year P=2,239,446 P=1,906,150
The reconciliation of provision for (benefit from) income tax computed at the statutory income tax rate to provision for (benefit from) income tax as shown in the consolidated statements of income as follows:
2010 2009 2008 Income before income tax P=1,505,180,021 P=704,161,601 P=1,063,872,212
Income tax computed at statutory tax rate of 30% in 2010 and 2009 and 35% in 2008 P=451,554,006 P=211,248,480 P=372,355,274
Add (deduct) tax effects of: Net income under ITH (see Note 31) (486,251,786) (461,326,568) (405,027,435) Provision for potential losses
on input VAT 100,220,985 331,389,784 – Equity in net earnings of an
associate (48,800,466) (52,185,533) (39,607,483) Nondeductible expenses and others 47,865,677 42,880,773 10,269,787 Interest income subjected
to final tax (29,195,588) (20,915,113) (25,790,979) Write-off of deferred tax assets 13,769,057 – – Amortization of capitalized
input VAT 6,505,392 – – Write-off of input VAT – 28,281,442 – Income already subjected
to capital gains tax – (61,182,644) – Final tax on interest income 19,429,155 13,897,062 15,406,536 Change in unrecognized deferred
tax assets 7,517,732 (12,782,286) (461,525) Change in unrecognized deferred
tax covered within ITH period (4,133,929) (2,111,550) 30,156,844 Capital gains tax – 20,983,000 – Effect of future change in tax rate
on recognized net deferred tax liabilities – – (2,261,564)
P=78,480,235 P=38,176,847 (P=44,960,545)
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The reconciliation of net deferred tax liabilities is summarized as follows:
2010 2009 2008 Balance at beginning of year P=285,080,565 P=282,859,424 P=360,433,560 Provision for (benefit from)
income tax during the year recognized in the consolidated statements of income 26,642,331 (8,610,306) (62,316,319)
Income tax effect during the year recognized in the consolidated statements of comprehensive income 10,431,492 10,831,447 (15,257,817)
Balance at end of year P=322,154,388 P=285,080,565 P=282,859,424
On May 24, 2005, the Congress of the Philippines issued RA 9337 effective November 1, 2005. Pursuant to RA 9337, RCIT rate for domestic corporations and resident and non-resident foreign corporations was increased to 35% (from 32%) beginning November 1, 2005 and the rate was reduced to 30% beginning January 1, 2009.
27. Basic/Diluted Earnings Per Share (EPS)
The basic/diluted EPS amount was computed as follows:
2010 2009 2008 Net income attributable to equity
holders of the Parent P=996,491,029 P=581,651,736 P=783,928,412 Divide by weighted average shares
outstanding: Shares outstanding at beginning
of year 4,978,550,467 4,978,550,467 5,065,570,627 Effect of treasury share transaction
during the year – – (18,222,478) 4,978,550,467 4,978,550,467 5,047,348,149 Basic/Diluted EPS P=0.20 P=0.12 P=0.16
The Company does not have dilutive common stock equivalents, thus, the basic and dilutive EPS are the same.
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28. Significant Contracts and Commitments
SCTEx Concession Agreement In 2010, MNTC participated in a public bidding conducted by the BCDA for the right to manage, operate and maintain the SCTEx on an “as is, where is” basis for a period until October 30, 2043. MNTC’s technical proposal met the requirements of BCDA but its financial proposal failed to meet the minimum financial requirements. However, MNTC was given the opportunity to improve its financial proposal and, as a result, BCDA formally awarded MNTC on June 9, 2010, the right to enter into a concession agreement with BCDA for the management, operation and maintenance of SCTEx. On November 8, 2010, the parties entered into a Concession Agreement under which BCDA granted MNTC the usufructuary rights to and the right to manage, maintain and operate the 94-km SCTEx for a period of 25 years, extendable by another 8 years. In granting the concession, BCDA has also assigned to MNTC its rights under the TOA it signed with the TRB including the right to collect toll fees. The assignment is subject to certain conditions including, among others, the necessary Philippine Government approvals and the execution of a STOA.
In consideration of the assignment, MNTC will pay BCDA a semi-annual concession fees amounting to the peso equivalent of BCDA’s yen-denominated debt service obligation to Japan International Cooperation Agency (JICA) for the period, from effective date until year 2016. From 2017 to 2043, MNTC will pay, as concession fee, 20% of the gross revenues from the SCTEx.
In order to secure its obligation to pay concession fees to BCDA and perform committed maintenance, enhancement, and improvement works amounting to about P=20.3 billion, as well as emergency works estimated at approximately P=231.0 million, MNTC has to issue a standby letter of credit (LC) effective for one year which shall be automatically renewed every year until the end of the concession. The LC amount shall be in the approximate amount of P=1.3 billion per annum from 2011 to 2016.
As of February 23, 2011, the parties are still in the process of obtaining certain consents and formalizing the STOA and therefore the SCTEx had not been assigned and turned over to MNTC.
Others On April 14, 2009, MNTC, under a competitive bidding, has awarded the Civil Works contract to Leighton Contractors (Asia) Limited (LCAL), a construction unit of LIL. The Civil Works Construction Agreement was executed by MNTC and LCAL in relation to the construction of the 2.7 km Segment 8.1 stretching from Mindanao Avenue to NLE. Total civil works construction contract was set at P=1,458.8 million, as may be adjusted from time to time pursuant to the terms of the agreement.
The Construction Notice to Proceed was issued by the Company to LCAL on April 14, 2009, and mobilization works commenced on April 22, 2009. The construction of Segment 8.1 has already been substantially completed as of June 5, 2010.
Unapplied mobilization advances to LCAL, included as part of “Advances to contractors and consultants” account in the balance sheet, amounted to P=219.8 million as of December 31, 2009. There were no unapplied mobilization advances as of December 31, 2010.
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29. Financial Risk Management Objectives and Policies and Capital Management
The Company’s principal financial instruments comprise long-term loans, proceeds of which were used to finance the construction of the Project on a limited recourse basis. The Company has various other financial instruments such as cash and cash equivalents, AFS financial assets, investment in bonds, receivables from trade debtors and payables to trade creditors, which arise directly from its operations.
The Company also enters into derivative transactions, principally interest rate swaps and cross currency swaps. The purpose of which is to manage the interest rate and foreign currency risks arising from the Company’s operations and its sources of finance.
The main risks arising from the Company’s financial instruments are interest rate risk and foreign currency risk which were both mitigated when the Company entered into cross currency swap and interest rate swap transactions between July 1, 2008 and April 1, 2009 (see Note 30). As a result, the Company locked in the amount of its debt service obligations until maturity date. In line with its capital restructuring program, the Company terminated all its swap transactions on January 14, 2011 simultaneous with the prepayment of the underlying loans.
Interest Rate Risk The Company’s exposure to interest rate risk relates primarily to the Company’s long-term debt obligations with floating interest rates. In accordance with its interest rate management policy, the Company converted 60% of outstanding loans into fixed-rate debt, effectively locking in the interest rate on majority of its loan obligations and reducing exposure to interest rate fluctuations. This was done through the exercise of embedded fixed-rate funding options under some of the loan facilities, namely: EFIC, ADB Direct and COFACE in 2005. With the refinancing in 2006, the percentage of fixed-rate debt has increased to 76% since the FXCN, which carry a fixed interest rate of 9.75% per annum, account for more than half of the outstanding debt.
To further reduce its interest rate risk exposure, the Company entered into a series of derivative transactions, in particular, cross currency interest rate swaps, during 2008 and 2009 (see Note 30). Under these transactions, the counterparty shall pay semi-annual interest in U.S. dollar at floating rates equivalent to those of the long-term debt obligations every six months. In exchange, the Company shall pay its counterparty semi-annual interest in Philippine peso at an agreed-upon fixed rate every six months. These swaps are designated as cash flow hedges of the underlying debt obligations.
The following table summarizes the changes in interest rates after taking into account the result of the swap transactions:
Notional Amount December 31, December 31, Floating and Fixed Fixed Interest Loan Facility 2010 2009 Interest Rate Rate ADB-CFS A $7,437,500 $9,562,500 LIBOR + 2.75% Margin 8.30% ADB-CFS B 1,312,500 1,687,500 LIBOR + 2.75% Margin 8.88% USD Bank Facility 14,021,875 18,028,125 LIBOR + 3.00% Margin 9.10% COFACE 6,540,625 8,409,375 6.13% 7.60% EFIC 6,562,500 8,437,500 8.03% 11.50% $35,875,000 $46,125,000
ADB Direct P=380,520,000 P=489,240,000 PHIREF + 4.66% Margin 9.40%
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As more of the floating-rate loans were paid on scheduled repayment dates and the derivative transactions effectively converted the floating rates to fixed rates for two loan facilities in 2008 and another two loan facilities in 2009, the percentage of floating-rate debt has declined to 0.0% of total outstanding debt as of December 31, 2010 and 2009.
The cross currency swap on the COFACE covered loan features a shift from a fixed interest rate to floating interest rate (see Note 30). In February 2009, the Company entered into another interest rate swap transaction to fix the interest rate on the loan facility.
The following tables set out the principal amount, by maturity, of the Company’s long-term debt:
U.S. Dollar-denominated Loans
December 31, 2010
Interest Rate Within the
Year (’000) 2–3 Years
(’000) 4–5 Years
(’000)
More than 5 Years
(’000) Total (’000)
Fixed-rate loans: EFIC 8.03% $7,021 $– $– $– $7,021 COFACE 6.13% 7,177 – – – 7,177 14,198 – – – 14,198
Floating-rate loans: ADB-CFS LIBOR + 2.75% Margin 8,756 – – – 8,756 USD Bank LIBOR + 3.00% Margin 14,037 – – – 14,037 22,793 – – – 22,793 $36,991 $– $– $– $36,991
December 31, 2009
Interest Rate Within the
Year (’000) 2–3 Years
(’000) 4–5 Years
(’000)
More than 5 Years
(’000) Total
(’000) Fixed-rate loans: EFIC 8.03% $1,875 $3,750 $2,813 $– $8,438 COFACE 6.13% 1,869 3,738 2,803 – 8,410 3,744 7,488 5,616 – 16,848
Floating-rate loans: ADB-CFS LIBOR + 2.75% Margin 2,500 5,000 3,750 – 11,250 USD Bank LIBOR + 3.00% Margin 4,006 8,012 6,009 – 18,027 6,506 13,012 9,759 – 29,277 $10,250 $20,500 $15,375 $– $46,125
Peso-denominated Notes and Loans
December 31, 2010
Interest Rate Within the
Year (’000) 2–3 Years
(’000) 4–5 Years
(’000)
More than 5 Years
(’000) Total (’000)
Fixed-rate loans - FXCN Noteholders 9.75% P=55,000 P=5,280,000 P=– P=– P=5,335,000
Floating-rate loans: ADB-Direct PHIREF + 4.66% Margin 435,455 – – – 435,455 PNB Loan 9.61%* 105,000 210,000 1,785,000 – 2,100,000 540,455 210,000 1,785,000 2,535,455 P=595,455 P=5,490,000 P=1,785,000 P=– P=7,870,455 *Converted to floating interest rate based on PHIREF plus a margin of 0.5% upon re-pricing on December 15, 2010.
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December 31, 2009
Interest Rate Within the
Year (’000) 2–3 Years
(’000) 4–5 Years
(’000)
More than 5 Years
(’000) Total
(’000) Fixed-rate loans: FXCN Noteholders 9.75% P=55,000 P=110,000 P=5,225,000 P=– P=5,390,000 PNB Loan 9.61% – 57,700 274,075 245,225 577,000 55,000 167,700 5,499,075 245,225 5,967,000
Floating-rate loan - ADB-Direct PHIREF + 4.66% Margin 108,720 217,440 163,080 – 489,240 P=163,720 P=385,140 P=5,662,155 P=245,225 P=6,456,240
Interest on financial instruments classified as floating rate is repriced semi-annually and quarterly on each interest payment date. Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument. The other financial instruments of the Company that are not included in the above table are noninterest-bearing and are therefore not subject to interest rate risk.
The interest rate exposure of the Company has changed with the prepayment of the foreign currency loans on January 14, 2011. With 100.0% of its financial instruments in local currency loans, around 48.0% of which is in floating interest rate, exposure is now limited to changes in six-month PHIREF and three-month PHIREF.
The following table demonstrates the sensitivity of income to changes in interest rates with all other variables held constant. The management expects that interest rates will move by ±50 basis points within the next reporting period. There is no other effect on equity other than those affecting the consolidated statement of income:
Increase/Decrease in Basis Points Effect on Income
Before Income Tax 2010 +50 (P=306,636) -50 306,636
2009 +50 – -50 –
With regard to the Company’s derivatives transactions, the following table demonstrates the sensitivity of fair value changes due to movements in interest rates with all other variables held constant. The management expects that interest rates will move by ±50 basis points within the next reporting period. The sensitivity to the consolidated statement of income pertains to derivatives at FVPL whereas the sensitivity to equity pertains to those derivatives accounted for as cash flow hedges:
Increase/Decrease
in Basis Points
Effect on Income Before
Income Tax Effect on Equity 2010 +50 P=16,745,077 P=– -50 (16,982,452) –
2009 +50 (598,355) 20,838,807 -50 611,763 (21,188,994)
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Foreign Currency Risk The Company’s foreign currency risk arises mainly from its exposure to U.S. dollar-denominated long-term loans which constitute 25% and 38% of its outstanding loans as of December 31, 2010 and 2009, respectively. These long-term loans were translated using US$1 = P=43.89 and US$1 = P=46.36 as of December 31, 2010 and 2009, respectively. Exposure to foreign currency risk was significantly reduced when the Company undertook a major risk management initiative in 2006 by refinancing around 50% of its outstanding U.S. dollar loans with peso loans. The exposure was further reduced when the Company entered into derivative transactions in 2008 and 2009, and subsequently converted the ADB Direct Loan from U.S. dollar to peso in March 2009. This allowed the Company to fully hedge its exposure on variability in cash flows due to foreign currency exchange fluctuations through cross currency interest rate swaps. The following table summarizes the features of these hedging transactions:
Loan Facility Effective Date Principal Amount
Hedged Swap Rate Notional Amount ADB-CFS A September 23, 2008 $12,750,000 P=46.33 P=590,707,500 ADB-CFS B October 3, 2008 2,250,000 47.05 105,862,500 COFACE July 2, 2008 11,212,500 45.00 504,562,500 USD Bank Facility October 3, 2008 24,037,500 47.05 1,130,964,375 EFIC January 5, 2009 10,312,500 47.42 489,018,750 $60,562,500 P=2,821,115,625
In connection with the Company’s objective of reducing the exposure to foreign currency risk to zero, since revenues are 100% peso-denominated, the authorized toll rate (ATR) adjustment formula was revised starting on the next periodic toll rate adjustment on January 1, 2011. The revised formula removes the foreign exchange component factor, which passes on 50% of the foreign currency exposure on bi-annual adjustments following the initial toll rate adjustment.
The foreign currency denominated balances as of December 31, 2010 and 2009 are as follows:
2010 2009 U.S. Dollar Euro U.S. Dollar Euro Assets: Cash and cash equivalents $879,695 €– $128,606 €– Derivative assets 929,460 – 688,379 – 1,809,155 – 816,985 – Liabilities: Accounts payable and other
current liabilities (163,731) (147,134) (116,568) (18,906) Derivative liabilities (4,828,813) – (959,258) – Long-term debt (37,517,996) – (46,125,000) – (42,510,540) (147,134) (47,200,826) (18,906) Net foreign currency-denominated
liabilities ($40,701,385) (€147,134) ($46,383,841) (€18,906)
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The following table demonstrates the sensitivity of income to changes in foreign exchange rates with all variables held constant. Management estimates that U.S. dollar, Euro and Singapore dollar exchange rates will change by ±5% within the next reporting period. Changes in income before income tax pertain to those financial obligations which are unhedged.
Increase/Decrease in Peso to U.S. Dollar, Euro and Singapore Dollar
Exchange Rates
Effect on Income Before
Income Tax 2010 U.S. Dollar +5% (P=89,319,189) Euro +5% (426,935) U.S. Dollar –5% 89,319,189 Euro –5% (426,935)
2009 U.S. Dollar +5% (19,463,343) Euro +5% (63,018) Singapore Dollar +5% (80,473) U.S. Dollar –5% 19,463,343 Euro –5% 63,018 Singapore Dollar –5% 80,473
With regard to the Company’s derivative activities, the following table demonstrates the sensitivity of fair value changes due to movements in foreign exchange rates with all variables held constant. Management estimates that U.S. dollar exchange rates will change by ±5% within the next reporting period. The sensitivity to consolidated statement of income pertains to derivatives at FVPL whereas the sensitivity to equity pertains to those derivatives accounted for as cash flow hedges.
Increase/Decrease in Peso:U.S. Dollar
Exchange Rate
Effect on Income Before Income
Tax Effect on Equity 2010 +5% P=98,064,611 P=– -5% (98,064,611) –
2009 +5% 21,372,355 94,061,195 -5% (21,372,355) (94,061,195)
On January 14, 2011, the Company’s exposure to foreign exchange currency risk in relation to its long-term loans was eliminated with the full prepayment of its outstanding U.S. Dollar and ADB Direct loans.
Credit Risk The Company’s exposure to credit risk on trade receivables is indirect since the responsibility for account management and collection is part of the subscription account management function of its operator, TMC. The Company, through TMC, offers a credit card payment option called automatic debit via credit card (Credit Card ADA) which, to a certain extent, operates like a post-payment account that can have some collection backlog if not managed properly. The Company’s policy is to provide TMC a 30-day window within which to collect declined Credit Card ADA transactions for the annual period. Any uncollected Credit Card ADA top-ups after the 30-day grace period will be considered as part of the toll collection variance of TMC (ADA variance). In
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2010 and 2009, the cut-off date for the determination of the ADA variance is on January 30, 2010 and 2009, respectively, following the 30-day policy. As of January 30, 2010 and 2009, the declined ADA reload transactions in 2010 and 2009 amounted only to P=0.2 million and P=0.1 million, respectively.
There is also a credit risk on receivables from the Company’s hedging counterparty, Mizuho Corporate Bank (Mizuho). Under the hedge agreement, Mizuho shall pay the Company, in U.S. dollar and at specified dates, amounts equal to the semi-annual principal and interest payments for the Company’s U.S. dollar-denominated loans, namely ADB-CFS, USD Bank, EFIC and COFACE. In exchange, the Company pays Mizuho equivalent amounts in Philippine peso at agreed-upon swap rates and fixed interest rates. The Company manages its counterparty risk by transacting with counterparties of good financial condition and credit rating. Although limiting aggregate exposure on all outstanding derivatives to any individual counterparty would effectively manage settlement risk on derivatives, the CTA stipulated that hedge counterparties would not have voting rights and may not declare an event of default which other counterparties find difficult to accept. To mitigate this exposure, the Company monitors and assesses on a regular basis the counterparty’s credit rating in Moody’s, Standard & Poor’s (S&P) and Fitch to obtain reasonable assurance that the counterparty would be able to fulfill its financial obligations under the hedge agreements.
On December 13, 2010, the Company issued a notice of prepayment to Mizuho as hedging counterparty indicating the Company’s intent to cancel the cross currency and interest rate swap transactions with Mizuho on January 14, 2011, the same date as the prepayment of the loans. The cancellation proceeded in accordance with the notice.
With respect to credit risk arising from other financial assets, which comprise cash and cash equivalents, due from related parties, investments in bonds and treasury bills and AFS financial assets, the Company’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to carrying amount of these financial assets.
The table below shows the maximum exposure to credit risk for the Company’s financial assets, without taking account of any collateral and other credit enhancements:
December 31,
2010 December 31,
2009 Cash and cash equivalents(a) P=1,848,255,875 P=1,486,966,642 Receivables: Trade receivables 25,329,304 11,341,505 Advances to officers and employees 5,515,624 5,272,843 Interest and other receivables 26,094,909 13,142,592 Derivative assets 2,901,514 39,211,764 AFS financial assets 565,046,009 – Due from related parties 597,902,155 605,447,952 Investment in treasury bills(b) – 4,000,000 Investment in bonds – 400,600,000 Refundable deposits and other financial assets(c) 4,398,698 2,451,082 Total credit risk exposure P=3,075,444,088 P=2,568,434,380 (a) Excluding cash on hand. (b) Included under Other current assets. (c) Included under Other noncurrent assets.
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Cash and cash equivalents are placed with reputable local and international banks which meet the credit rating criteria set under the loan agreements. Qualified banks in the Philippines are those with a bank deposit rating of at least equal to the sovereign rating, or if there is no bank deposit rating, bank financial strength rating of at least ‘D’ by Moody's, or whose credit rating given by Moody’s, S&P, or Fitch is equal to the Philippine government, or whose issuer or issue credit rating by Philratings is at least ‘Aa.’ Qualified banks outside the Philippines are those whose senior unsecured obligations are rated at least ‘BBB’ by S&P.
Receivables are the trade receivables related to Credit Card ADA transactions as described earlier and due from related parties mainly from MPIC and TMC. MPIC and TMC are considered as low-risk counterparties since the Company has payment obligations to MPIC and TMC which far exceed the aggregate amount of receivables and dues from MPIC and TMC. In addition, TMC’s performance under the O&M is guaranteed by MPTDC and Egis Road Operation. Some ADA receivables amounting to P=5.3 million that were incurred during the start-up period from February 10 to August 31, 2005 were carved out from TMC’s responsibility and are currently considered as direct receivables of the Company. While the Company is considering legal action against a certain bus company that is responsible for majority of the unpaid ADA transactions in 2005, it has already booked a provision for doubtful accounts corresponding to such amount.
The Company also generates non-toll revenues in the form of service fees collected from business locators, generally called Toll Service Facilities (TSF), along the stretch of the NLE. The collection of such fees is provided in the STOA and is based on the principle that these TSF derive benefit by offering goods and services to NLE motorists. The fees range from one-time access fees to recurring fees calculated as a percentage of sales. The arrangements are backed by a service facility contract between the Company and the various locators. The credit risk on these arrangements is minimal because the fees are collected on a monthly basis mostly from well-established companies such as Petron, Shell and Chevron. The exposure is also limited given that the recurring amounts are not significant and there are adequate safeguards in the contract against payment delinquency. Nevertheless, the Company closely monitors receivables from the TSF.
As of December 31, 2010 and 2009, the aging analysis of past due but not impaired trade receivables is as follows:
Neither Past Due nor
Impaired
Past Due but not Impaired
<31 Days 31–60 Days 61–90 Days 91–180 Days 181 days –
1 year Total Total 2010 P=20,002,371 P=– P=– P=1,196,053 P=1,702,008 P=2,428,872 P=5,326,933 P=25,329,304 2009 11,341,505 – – – – – – 11,341,505
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The table below shows the credit quality of the Company’s financial assets based on their historical experience with the corresponding third parties:
December 31, 2010
Neither Past Due
nor Impaired - High-grade Past Due Impaired Total Cash and cash equivalents(a) P=1,848,255,875 P=– P=– P=1,848,255,875 Receivables: Trade receivables 20,002,371 5,326,933 5,259,500 30,588,804 Advances to officers
and employees 5,515,624 – – 5,515,624 Interest and other receivables 26,094,909 – – 26,094,909 Derivative assets 2,901,514 – – 2,901,514 Due from related parties 597,902,155 – – 597,902,155 AFS financial assets 565,046,009 – – 565,046,009 Refundable deposits and other
financial assets(c) 4,398,698 – – 4,398,698 P=3,070,117,155 P=5,326,933 P=5,259,500 P=3,080,703,588
December 31, 2009
Neither Past Due
nor Impaired - High-grade Impaired Total Cash and cash equivalents P=1,486,966,642 P=– P=1,486,966,642 Receivables: Trade receivables 11,341,505 5,259,500 16,601,005 Advances to officers and employees 5,272,843 – 5,272,843 Interest and other receivables 13,142,592 – 13,142,592 Derivative assets 39,211,764 – 39,211,764 Due from related parties 605,447,952 – 605,447,952 Investment in treasury bills(b) 4,000,000 – 4,000,000 Investment in bonds 400,600,000 – 400,600,000 Refundable deposits and other financial assets(c) 2,451,082 – 2,451,082 P=2,568,434,380 P=5,259,500 P=2,573,693,880 (a) Excluding cash on hand. (b) Included under Other current assets. (c) Included under Other noncurrent assets.
With the exception of the impaired portion, all of the Company’s financial assets are considered high-grade receivables since these are receivables from counterparties who are not expected to default in settling their obligations. These counterparties include reputable local and international banks and companies and the Philippine government. Other counterparties also have corresponding collectibles from the Company for certain contracted services. The first-layer of security comes from the Company’s ability to offset amounts receivable from these counterparties against payments due to them.
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Liquidity Risk The Company is not exposed to significant liquidity risk because of the nature of its operations which provides daily inflows of cash from toll collections. The Company is able to build up sufficient cash from operating revenues prior to the maturity of its payment obligations. As required under the loan agreements, the Company also maintains an interest reserve account that can cover interest payable on its long-term debt loans for one interest period. The Company has short-term credit lines amounting to P=900.0 million as of December 31, 2010 and 2009, and cash and cash equivalents amounting to P=1,874.1 million and P=1,520.1 million as of December 31, 2010 and 2009, respectively, that are allocated to meet the Company’s short-term liquidity needs.
The table below summarizes the maturity profile of the Company’s financial liabilities as of December 31, 2010 and 2009 based on undiscounted payments:
December 31, 2010
Within
the Year 2–3 Years 4–5 Years More than
5 Years Total Accounts payable and other
current liabilities* P=206,180,996 P=– P=– P=– P=206,180,996 Due to related parties 329,775,767 – – – 329,775,767 Dividends payable 181,981,147 – – – 181,981,147 Long-term debt** 2,651,334,355 6,532,295,666 2,022,426,834 – 11,206,056,855 Financial guarantee obligation 11,055,000 22,110,000 22,110,000 243,210,000 298,485,000 3,380,327,265 6,554,405,666 2,044,536,834 243,210,000 12,222,479,765 Derivative liabilities: Derivative contracts -
receipts (1,453,761,476) – – – (1,453,761,476) Derivative contracts -
payments 1,665,673,931 – – – 1,665,673,931 211,912,455 – – – 211,912,455 P=3,592,239,720 P=6,554,405,666 P=2,044,536,834 P=243,210,000 P=12,434,392,220
December 31, 2009
Within
the Year 2–3 Years 4–5 Years More than
5 Years Total Accounts payable and other
current liabilities* P=242,431,833 P=– P=– P=– P=242,431,833 Due to related parties 327,585,036 – – – 327,585,036 Dividends payable 143,883,011 – – – 143,883,011 Long-term debt** 1,274,926,142 2,526,454,137 7,164,152,637 257,170,223 11,222,703,139 Financial guarantee obligation 11,055,000 22,110,000 22,110,000 254,265,000 309,540,000 1,999,881,022 2,548,564,137 7,186,262,637 511,435,223 12,246,143,019 Derivative liabilities: Derivative contracts -
receipts (460,420,537) (894,997,073) (622,302,923) – (1,977,720,533) Derivative contracts -
payments 553,410,162 994,595,623 646,545,120 – 2,194,550,905 92,989,625 99,598,550 24,242,197 – 216,830,372 P=2,092,870,647 P=2,648,162,687 P=7,210,504,834 P=511,435,223 P=12,462,973,391 ** Excluding statutory liabilities. ** Including interest to be paid.
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Capital Management The primary objective of the Company’s capital management is to ensure that it maintains healthy capital ratios in order to support its business and maximize shareholder value while complying with the financial covenants required by the lenders. Under the loan agreement, there is a limit to the amount of additional senior debt that the Company can incur, US$50.0 million (or its peso equivalent, as escalated) for Phase II expansion and US$10.0 million (or its peso equivalent, as escalated) for general corporate purposes within three years after November 8, 2006. After this three-year period, incurrence of additional senior debt is governed by certain cash flow tests such as forward debt-service coverage ratios (minimum of 1.3x) and Debt:EBITDA ratio (maximum of 3:1).
The Company also ensures that its debt to equity ratio is in line with the requirements of the Bangko Sentral ng Pilipinas (BSP) and the Board of Investments (BOI). BSP requires the Company to maintain a long-term debt to equity ratio of at most 75:25 during the term of the foreign loans while BOI requires the Company to comply with a 75:25 debt to equity ratio as proof of capital build-up. The Company’s long-term debt to equity ratio stood at only 61:39 and 58:42 as of December 31, 2010 and 2009, respectively, indicating that the Company has the capacity to incur additional long-term debt to build up its capital.
2010 2009 Long-term debt P=9,354,332,475 P=8,367,415,106 Total equity attributable to equity holders of parent 5,906,986,513 6,083,922,015 Total capital P=15,261,318,988 P=14,451,337,121
Debt to equity ratio 61:39 58:42
The Company continuously evaluates whether its capital structure can support its business strategy.
In 2010, the Company launched its capital restructuring plan which aims to maximize the Company’s flexibility to pursue expansion opportunities within and outside the NLE concession and, at the same time, maintain a steady flow of dividends to shareholders. In order to do this, the Company had to take certain steps to complete its transition away from its project-finance origins. First of these steps is the prepayment of the U.S. Dollar and ADB Direct loans. While the prepayment entailed costs related to the cancellation of several hedge transactions, the low interest environment and strong liquidity of the local market ensured the Company that the loan prepayment and swap termination can be done efficiently. To effect the prepayment, the Company obtained a short-term Peso bridge loan facility that will eventually be refinanced with a long-term Peso loan facility. Post prepayment, the weighted average interest rate on the Company’s long term loan facilities went down from 9.6% per annum to 6.6% per annum.
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30. Financial Assets and Liabilities
Fair Values A comparison of carrying and fair values of all of the Company’s financial instruments by category as of December 31, 2010 and 2009 follow:
2010 2009 Carrying Value Fair Value Carrying Value Fair Value Financial Assets FVPL - Derivative assets P=2,901,514 P=2,901,514 P=31,910,484 P=31,910,484 Designated as accounting hedges - Derivative assets – – 7,301,280 7,301,280 2,901,514 2,901,514 39,211,764 39,211,764 Loans and receivables: Cash and cash equivalents 1,874,116,857 1,874,116,857 1,520,056,575 1,520,056,575 Receivables: Trade 25,329,304 25,329,304 11,341,505 11,341,505 Advances to officers
and employees 5,515,624 5,515,624 5,272,843 5,272,843 Interest and other receivables 26,094,909 26,094,909 13,142,592 13,142,592 Due from related parties 597,902,155 654,586,457 605,447,952 648,041,038 Refundable deposits and other
financial assets(a) 4,579,766 4,447,042 2,451,082 2,376,982 2,533,538,615 2,590,090,193 2,157,712,549 2,200,231,535 AFS financial assets: Investment in bonds 424,093,000 424,093,000 – – Investment in unquoted shares 140,953,009 140,953,009 – – 565,046,009 565,046,009 – – HTM investment: Investment in bonds – – 400,600,000 405,947,568 Investment in treasury bills(b) – – 4,000,000 3,929,192 – – 404,600,000 409,876,760 P=3,101,486,138 P=3,158,037,716 P=2,601,524,313 P=2,649,320,059
Financial Liabilities FVPL - Derivative liabilities P=211,912,455 P=211,912,455 P=– P=– Designated as accounting hedges - Derivative liabilities – – 44,467,365 44,467,365 211,912,455 211,912,455 44,467,365 44,467,365 Other financial liabilities: Accounts payable and other
current liabilities(c) 206,180,996 206,180,996 242,431,833 242,431,833 Due to related parties 329,775,767 329,775,767 327,585,036 327,585,036 Dividends payable 181,981,147 181,981,147 143,883,011 143,883,011 Long-term debt 9,354,332,475 9,845,181,364 8,367,415,106 9,011,571,304 Financial guarantee obligation 65,413,467 122,097,769 65,569,017 108,162,103 10,137,683,852 10,685,217,043 9,146,884,003 9,833,633,287 P=10,349,596,307 P=10,897,129,498 P=9,191,351,368 P=9,878,100,652 (a) Included under Other noncurrent assets. (b) Included under Other current assets. (c) Excluding statutory liabilities.
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The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate such value:
Derivative Assets and Liabilities The fair values of cross currency swap transactions as of December 31, 2010 were based on the actual settlement amount provided by the counterparty. As of December 31, 2009, the fair values of the currency swap transactions is the net present value of estimated future cash flows using U.S. and Philippine risk free rates ranging from 0.2% to 4.0% and 4.1% to 12.4%, respectively.
Cash and Cash Equivalents, Receivables, Due from Related Parties (Current), Accounts Payable and Other Current Liabilities, Dividends Payable, and Due to Related Parties Carrying value approximates the fair value at balance sheet date due to the short-term nature of the transaction.
Investment in Bonds and Treasury Bills As of December 31, 2009, investment in bonds pertain to quoted ROP treasury bonds which bear fixed interest rates ranging from 5.3% to 9.0%, payable quarterly, and with the following maturities:
Maturity Date Amount July 31, 2011 P=50,000,000 September 24, 2012 300,000,000 July 31, 2013 50,600,000 P=400,600,000
Investment in treasury bills amounting to P=4.0 million, included under “Other current assets” account in the consolidated balance sheet, pertain to quoted zero-coupon ROP short-term securities with a yield to maturity of 4.13% per annum maturing on June 2, 2010.
The fair values are based on the quoted market price of the financial instruments as of December 31, 2009.
AFS Financial Assets The fair value of investment in bonds classified as AFS financial assets is based on the quoted market price of the financial instruments as of December 31, 2010.
Unquoted AFS financial asset where the fair value is not reasonably determinable were carried and presented at cost.
Due from Related Parties (Noncurrent), Refundable Deposits and Other Financial Assets and Financial Guarantee Obligation Estimated fair value is based on the discounted value of future cash flows using the prevailing peso interest rates that are specific to the tenor of the instruments’ cash flows ranging from 1.2% to 10.9% in 2010 and 4.1% to 11.3% in 2009.
Long-term Debt For both fixed rate and floating rate (repriceable every six months) U.S. dollar-denominated debts and peso-denominated notes and loans, estimated fair value is based on the discounted value of future cash flows using the prevailing credit adjusted U.S. risk-free rates and prevailing peso interest rates ranging from 0.3% to 6.1% and 0.6% to 6.1% in 2010 and 2009, respectively.
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Fair Value Hierarchy The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
As at December 31, 2010 and 2009, the Company held the following financial instruments measured at fair value:
December 31,
2010 Level 1 Level 2 Financial Assets Financial Assets at FVPL - Derivative assets at FVPL P=2,901,514 P=– P=2,901,514 AFS financial assets - Investment in bonds 424,093,000 424,093,000 – P=426,994,514 P=424,093,000 P=2,901,514
Financial Liabilities Financial liabilities at FVPL - Derivative liabilities at FVPL P=211,912,455 P=– P=211,912,455
December 31,
2009 Level 1 Level 2 Financial Assets Financial Assets at FVPL: Derivative assets at FVPL P=31,910,484 P=– P=31,910,484 Derivative assets accounted
as accounting hedges 7,301,280 – 7,301,280 P=39,211,764 P=– P=39,211,764
Financial Liabilities Financial liabilities at FVPL - Derivative liabilities accounted
as accounting hedges P=44,467,365 P=– P=44,467,365
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Derivative Instruments In 2010 and 2009, the Company entered into cross currency and interest rate swap transactions to hedge its foreign exchange and interest rate exposures on the following loans:
Outstanding Balance as of
Loan Facility Interest Rate December 31,
2010 December 31,
2009 ADB-CFS A LIBOR + 2.75% Margin $7,443,443 $9,562,500 ADB-CFS B LIBOR + 2.75% Margin 1,313,549 1,687,500 USD Bank Facility LIBOR + 3.00% Margin 14,036,825 18,028,125 COFACE 6.13% 7,176,618 8,409,375 EFIC 8.03% 7,020,535 8,437,500 $36,990,970 $46,125,000
ADB Direct PHIREF + 4.66% Margin P=435,454,674 P=489,240,000
The following table provides the related fair values of the Company’s derivative financial instruments outstanding as of December 31, 2010 and 2009:
December 31, 2010 December 31, 2009 Asset Liability Asset Liability Cross currency swaps to hedge ADB-CFS A P=– (P=41,093,665) P=– (P=3,493,233) ADB-CFS B – (9,030,529) – (2,968,377) COFACE 2,901,514 – 27,223,321 – EFIC – (34,976,345) – (7,109,228) USD Bank Facility – (96,611,916) – (30,896,527) 2,901,514 (181,712,455) 27,223,321 (44,467,365) Interest rate swaps to hedge ADB Direct – (17,200,000) 7,301,280 – COFACE – (13,000,000) 4,687,163 – – (30,200,000) 11,988,443 – P=2,901,514 (P=211,912,455) P=39,211,764 (P=44,467,365)
Derivatives Accounted for as Non-hedge Transactions. On July 1, 2008, MNTC entered into a cross currency swap to hedge its fair value exposure on the COFACE covered loan due to movements in foreign exchange and interest rates. Under the cross currency swap, MNTC will receive US$11.2 million in installments of US$0.9 million every six months starting December 15, 2008 until June 16, 2014 plus semi-annual interest at a fixed rate of 6.13% per annum on the outstanding U.S. dollar balance, and pay P=504.6 million, payable in equal semi-annual installments of P=42.0 million every six months starting December 15, 2008 until June 16, 2014, and semi-annual interest at six-month Philippine Reference Rates (PHIREF) plus 2.75% per annum on the outstanding peso balance. As of December 31, 2010 and 2009, the outstanding notional amount of the swap amounted to US$6.5 million and US$8.4 million, respectively.
On February 26, 2009, MNTC entered into an interest rate swap where MNTC receives semi-annual interest based on six-month PHIREF plus 2.75% per annum spread and pays semi-annual fixed interest at 7.6% per annum, calculated based on an amortizing peso notional amount, starting June 15, 2009 until June 16, 2014. The outstanding notional amount of the swap amounted to P=294.3 million and P=378.4 million as of December 31, 2010 and 2009, respectively.
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The interest rate swap, together with the existing cross currency swap entered in 2008 for the COFACE loan, effectively transformed the dollar denominated floating rate loan into a fixed rate peso loan.
For the years ended December 31, 2010, 2009 and 2008, the fair value changes of the interest rate swap and cross currency swap (both hedging the COFACE loan) amounted to P=46.7 million loss, P=19.2 million loss and P=46.9 million gain, respectively.
Derivatives Accounted for Under Cash Flow Hedge Accounting. On September 23 and October 3, 2008, MNTC entered into cross currency swap transactions with Mizuho to hedge the cash flow variability on the ADB loans and USD Bank facility due to movements in foreign exchange and interest rates. In 2009, additional derivative transactions were entered to hedge the cash flow variability on the EFIC loan due to movements in foreign exchange rates and ADB Direct loan due to movement in interest rates.
ADB-CFS A Under the cross currency swap, MNTC will receive US$12.8 million in installments of US$1.1 million every six months starting December 15, 2008 until June 16, 2014 plus semi-annual interest at a rate of six-month LIBOR plus 2.75% per annum spread on the outstanding U.S. dollar balance, and pay P=590.7 million, payable in equal semi-annual installments of P=49.2 million every six months starting December 15, 2008 until June 16, 2014, and semi-annual interest at fixed rate of 8.3% per annum on the outstanding peso balance. As of December 31, 2010 and 2009, the outstanding notional amount of the swap amounted to US$7.4 million and US$9.6 million, respectively.
ADB-CFS B Under the cross currency swap, MNTC will receive US$2.2 million in installments of US$0.2 million every six months starting December 15, 2008 until June 16, 2014 plus semi-annual interest at a rate of six-month LIBOR plus 2.75% per annum spread on the outstanding U.S. dollar balance, and pay P=105.9 million, payable in equal semi-annual installments of P=8.8 million every six months starting December 15, 2008 until June 16, 2014, and semi-annual interest at fixed rate of 8.9% per annum on the outstanding peso balance. As of December 31, 2010 and 2009, the outstanding notional amount of the swap amounted to US$1.3 million and US$1.7 million, respectively.
USD Bank Facility Under the cross currency swap, MNTC will receive US$24.0 million in installments of US$2.0 million every six months starting December 15, 2008 until June 16, 2014 plus semi-annual interest at a rate of six-month LIBOR plus 3.0% per annum spread on the outstanding U.S. dollar balance, and pay P=1,131.0 million, payable in equal semi-annual installments of P=94.2 million every six months starting December 15, 2008 until June 16, 2014, and semi-annual interest at fixed rate of 9.1% per annum on the outstanding peso balance. As of December 31, 2010 and 2009, the outstanding notional amount of the swap amounted to US$14.0 million and US$18.0 million, respectively.
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EFIC MNTC entered into a cross currency swap to hedge its cash flow variability on the EFIC loan due to movements in foreign exchange rates effective January 5, 2009. Under the cross currency swap, MNTC will receive US$10.3 million in installments of US$0.9 million every six months starting June 15, 2009 until June 16, 2014, plus semi-annual fixed interest of 8.03% per annum based on the amortizing U.S. dollar notional amount, and pay P=498.0 million, payable in equal semi-annual installments of P=44.5 million every six months starting June 15, 2009 until June 16, 2014, plus semi-annual fixed interest at 11.5% per annum on the amortizing peso notional amount. The cross currency swap effectively transformed the fixed rate U.S. dollar loan into a fixed rate peso-denominated loan. As of December 31, 2010 and 2009, the outstanding notional amount of the swap amounted to US$6.6 million and US$8.4 million, respectively.
ADB Direct On April 1, 2009, MNTC entered into a pay-fixed, receive-floating interest rate swap contract to hedge the variability of cash flows pertaining to the floating rate ADB Direct Loan. Under the swap, MNTC will receive semi-annual interest equal to six-month PHIREF plus 4.66% per annum spread and pay semi-annual fixed interest of 9.4% per annum, based on the amortizing principal balance of the ADB Direct Loan, starting from June 15, 2009 until June 16, 2014. The interest rate swap effectively fixed the floating rate of the said loan over the duration of the agreement at 9.4% per annum. As of December 31, 2010 and 2009 the outstanding notional amount of the interest rate swap amounted to P=380.5 million and P=489.2 million, respectively.
Under the cash flow hedge, the effective portion of the change in fair values of the designated hedges are recognized directly in equity and recycled in earnings in the same periods during which the hedged transaction affects earnings.
Hedge Effectiveness of Cash Flow Hedges. Movements of the Company’s cumulative translation adjustments on cash flow hedges under “Other comprehensive income reserve” account for the years ended December 31, 2010, 2009 and 2008 are as follows:
2010 2009 2008
Balance at beginning of year (P=14,754,566) (P=50,859,390) P=– Changes in fair value of cash flow hedges (230,782,209) (92,696,079) (29,861,719) (245,536,775) (143,555,469) (29,861,719) Transferred to consolidated statements
of income: Mark-to-market loss 158,275,562 – – Interest expense* 91,808,514 84,082,556 9,701,750 Foreign exchange loss (gain) (8,023,228) 44,718,347 (30,699,421) 242,060,848 128,800,903 (20,997,671) (3,475,927) (14,754,566) (50,859,390) Tax effects of items taken directly to equity 1,042,778 4,426,370 15,257,817 Balance at end of year (P=2,433,149) (P=10,328,196) (P=35,601,573)
Attributable To Equity holders of the Parent (P=1,632,643) (P=6,930,220) (P=23,888,656) Non-controlling interests (800,506) (3,397,976) (11,712,917) (P=2,433,149) (P=10,328,196) (P=35,601,573) *Included in “Interest expense on bank loans “under” “Interest expense and other finance costs” account (see Note 24).
No ineffectiveness was recognized in the consolidated statements of income.
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Fair Value Changes on Derivatives. The net changes in the fair values of all derivative instruments for the years ended December 31, 2010, 2009 and 2008 follow:
2010 2009 2008
Balance at beginning of year (P=5,255,601) P=23,180,957 P=– Net changes in fair values of
derivatives: Designated as accounting hedges (230,782,209) (92,696,079) (29,861,719) Not designated as accounting
hedges* (see Note 25) (83,852,199) (19,219,364) 46,924,849 (319,890,009) (88,734,486) 17,063,130 Fair value of settled instruments: Designated as accounting hedges 106,196,804 83,478,885 6,117,827 Not designated as accounting
hedges 4,682,264 – – Balance at end of year (P=209,010,941) (P=5,255,601) P=23,180,957 *In 2010, these are recorded in the consolidated statement of income as follows: (a) P=69,241,926 is included in mark-to-market loss under “Other expense” account; (b) P=23,459,767 is included in “Interest expense” account; and (c) P=8,849,494 foreign exchange gain is included in “Foreign exchange gain (loss) - net” account. In 2009 and 2008, these are included in mark-to-market loss and mark-to-market gain under “Other expense” and “Other income” accounts, respectively.
No ineffectiveness was recognized in the consolidated statements of income. 31. Registration with Board of Investments (BOI)
MNTC is registered with the BOI as a preferred pioneer enterprise as a new operator of the NLE under the Omnibus Investment Code of 1987, otherwise known as Executive Order No. 226.
Under the terms of the registration, MNTC is subject to certain requirements, principally that of maintaining at least 60.0% Filipino ownership or voting equity. As a registered enterprise, MNTC is entitled to certain tax and non-tax incentives, including ITH for six years from December 1999 or from actual start of commercial operations whichever comes first but not earlier than the date of registration subject to certain conditions.
On October 16, 2001, the BOI has granted MNTC’s request for an extension of the ITH reckoning date from December 1999 to first quarter of 2004. Thus, MNTC’s ITH will end at the end of the first quarter of 2010. ITH incentive amounted to P=486.3 million, P=461.3 million and P=405.0 million in 2010, 2009 and 2008, respectively (see Note 26).
On July 29, 2009, upon the request of MNTC and after filing the necessary application, the BOI has granted an extension of MNTC’s ITH up to December 31, 2010 subject to the following conditions:
§ At the time of the actual availment of the ITH incentive, the derived capital equipment to labor ratio shall not exceed US$10,000 to one worker; and
§ MNTC shall undertake Corporate Social Responsibility activities which shall be completed on the actual availment of the bonus year.
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32. Contingencies and Others
Value Added Tax When RA 9337 took effect, the BIR issued RR No. 16-2005 on September 1, 2005, which, for the first time, expressly referred to toll road operations as being subject to VAT. This notwithstanding VAT Ruling 078-99 issued in August 9, 1999 where BIR categorically ruled that MNTC, as assignee of PNCC franchise, is entitled to the tax exemption privileges of PNCC and is exempt from VAT on its gross receipts from the operation of the NLE.
However, the TRB, in its letter dated October 28, 2005, directed MNTC (and all Philippine toll expressway companies) to defer the imposition of VAT on toll fees. Due to the possibility that MNTC may eventually be subjected to VAT, MNTC, in 2005, carved out the input tax from its purchases of goods and services (includes input tax in relation to the Project construction cost) in 2004 which were previously recorded as part of service concession assets and recorded such input tax, together with the input tax on 2005 purchases and onwards, as a separate “Input value-added tax” account and accordingly reflected the input tax in the VAT returns.
In September 2005, MNTC also requested for confirmation from the BIR that MNTC can claim input VAT for the passed-on VAT on its purchases of goods and services for 2003 and prior years. The request for confirmation is still pending as of February 23, 2011.
On December 21, 2009, BIR issued RMC No. 72-2009 as a reiteration of RMC No. 52-2005 imposing VAT on the tollway operators. However, on January 21, 2010, TAP issued a letter to tollway operators referring to a letter issued by TRB to TAP dated December 29, 2009 reiterating TRB’s previous instruction to all toll operators to defer the imposition of VAT on toll fees until further orders from their office. The TRB directive resulted from the Cabinet meeting held last December 29, 2009 at Baguio City where the deferment of the implementation of RMC No. 72-2009 was discussed.
On March 2010, the BIR issued RMC 30-2010 directing the imposition of the 12% VAT starting April 1, 2010, with coverage initially limited to private vehicles. However, on March 30, 2010, the TAP issued a letter to tollway operators referring to a letter issued by TRB to TAP dated March 30, 2010 directing the deferment of collection of VAT on toll fees until further orders from their office.
To fully implement the imposition of the VAT on toll fees, the BIR issued RMC No. 63-2010 dated July 19, 2010 which states that:
1. The VAT shall be imposed on the gross receipts of tollway operators from all types of vehicles starting August 16, 2010.
2. Tollway operators who have been assessed for VAT liabilities on receipts from toll fees for prior periods can apply for Abatement of the tax liability, surcharge and interest under Section 204 of the National Internal Revenue Code (NIRC) and RR No. 13-2001.
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3. The accumulated input VAT account of the toll companies shall have a zero balance on August 16, 2010. Any input VAT that will thenceforth be reflected in the books of accounts and other accounting records of tollway operators will have to be for purchases of goods and services delivered/rendered and invoiced/receipted on or after August 16, 2010.
4. All tollway operators are required to comply with the invoice/receipt format prescribed under RMC No. 40-2005.
Meanwhile, on August 4, 2010, MNTC, in accordance with RMC No. 63-2010, applied for abatement of alleged VAT liabilities for taxable years 2006 and 2007. The BIR has yet to resolve the application for abatement of MNTC.
On August 13, 2010, the SC issued a TRO on the imposition of the 12% VAT on tollway operators. The TRO has not been lifted as of February 23, 2011.
In view of the foregoing and in the light of the quick response of the Cabinet and the TRB on the BIR RMC No. 72-2009 and TRO issued by the SC on the imposition of VAT, MNTC continues to defer the imposition of VAT on toll fees from motorists and correspondingly, with VAT being a passed-on tax, MNTC did not recognize any VAT liability.
MNTC, together with other toll road operators, continues to discuss the issue of VAT with the concerned government agencies.
At present, the BIR continuously upholds its position that MNTC is indeed subject to VAT on toll revenues, stating that inasmuch as there is no concrete ruling yet on the exemption from VAT on toll fees, MNTC’s receipts from toll fees should be considered as subject to VAT. In relation thereto, the BIR has issued the following VAT assessments:
§ MNTC received a Formal Letter of Demand from the BIR on March 16, 2009 requesting MNTC to pay deficiency VAT plus penalties amounting to P=1,010.5 million for taxable year 2006.
§ MNTC received a Final Assessment Notice from the BIR dated November 15 2009, assessing MNTC for deficiency VAT plus penalties amounting to P=557.6 million for taxable year 2007.
§ MNTC received a Notice of Informal Assessment from the BIR dated October 5, 2009, assessing MNTC for deficiency VAT plus penalties amounting to P=470.9 million for taxable year 2008.
§ On May 21, 2010, the BIR issued a Notice of Informal Conference assessing MNTC for deficiency VAT plus penalties amounting to P=1,026.6 million for taxable year 2009. Included also in the Notice is the increase of the deficiency VAT for taxable year 2008 from P=470.9 million to P=1,209.2 million (including penalties).
Notwithstanding the foregoing, management believes, in consultation with its legal counsel, that in any event, the STOA amongst MNTC, ROP, acting by and through the TRB, and PNCC, provides MNTC with legal recourse in order to protect its lawful interests in case there is a change in existing laws which makes the performance by MNTC of its obligations materially more expensive.
- 86 -
*SGVMC214089*
Local Business Tax In 2008, MNTC has received a Final Demand from the municipality of Guiguinto, Bulacan to pay the local business tax (LBT) assessments for the years 2005 to 2007 amounting to P=67.4 million, inclusive of surcharges and penalties. The Company, through its legal counsel, protested and subsequently, in 2009 filed a complaint for annulment of assessment (with prayer for the issuance of temporary restraining order (TRO) and/or writ of preliminary injunction) with the Regional Trial Court (RTC) of Malolos, Bulacan claiming, among others, that its predecessor, PNCC has never been subjected to LBT and as such MNTC continued the customary practice of obtaining the business permits solely from the local government unit where its principal office is located. The case is still pending before the RTC of Malolos, Bulacan.
On November 19, 2009, TRB informed MNTC that TRB’s BOD has approved MNTC’s request to intervene in the local business tax case for the purposes of protecting the interests of the government and the motoring public, avoiding any disruption in the operation of the NLE as a limited access facility and resisting collateral attack in the validity of the STOA. TRB also advised MNTC that on November 12, 2009, the Omnibus Motion (i) for Intervention and (ii) to admit attached Manifestation and Motion in Intervention was filed by the Office of the Solicitor General on behalf of TRB praying for the issuance of a TRO and a writ of preliminary injunction to enjoin the municipality from closing MNTC’s business particularly with respect to its operations of the Burol-Tabang and Burol-Sta. Rita toll exits and any facility that is indispensable in the operation of the tollway.
In March 2010, MNTC received a final demand letter from the municipality of Guiguinto, Bulcan to pay LBT, permits, and regulatory fees. On March 12, 2010, the RTC of Malolos, Bulacan denied MNTC’s application for the issuance of a temporary restraining order and/or writ of preliminary injunction. On March 15, 2010, MNTC filed with the Court of Appeals a petition for certiorari (with application for the issuance of a TRO and/or a writ of preliminary injunction) to annul or set aside the orders of the RTC of Malolos, Bulacan denying MNTC’s application for the issuance of a writ of preliminary injunction. The Court of Appeals, in its decision dated July 23, 2010, dismissed the petition. On August 17, 2010, MNTC filed a motion for reconsideration. On December 3, 2010, the Court of Appeals denied the motion for reconsideration.
Meanwhile, on July 22, 2010, the Company filed another complaint with the RTC of Malolos, Bulacan seeking to annul and set aside the illegal assessment for unpaid LBT in the total amount of P=34.0 million, inclusive of surcharges and penalties, for the years 2008 and 2009 issued against the Company by the Municipal Treasurer of Guiguinto, Province of Bulacan in February 2010.
The cases are pending before the RTC of Malolos, Bulacan.
As of February 23, 2011, MNTC is in the process of discussing the issue on the prospective allocation of the LBT with the Bureau of Local Government Finance.
Real Property Tax In 2008, MNTC received real property tax assessments covering the toll roads located in the Municipality of Guiguinto amounting to P=2.9 million for the years 2005 to 2008. MNTC appealed before the Local Board of Assessment Appeals (LBAA) of Bulacan and prayed for the cancellation of the assessment. The case is still pending before the LBAA of Bulacan.
- 87 -
*SGVMC214089*
In 2004, MPTDC has received real property tax assessments covering Segment 7 located in the province of Bataan for the period from 1997 to June 2005 amounting to P=98.5 million for alleged delinquency property tax. MPTDC appealed before the LBAA of Bataan and prayed for the cancellation of the assessment. In the said appeal, MPTDC invoked that the property is owned by the ROP, hence, exempt from real property tax. The case is still pending before the LBAA of Bataan.
The outcome of these claims cannot be presently determined. Management believes that these claims will not have a significant impact on the Company’s consolidated financial statements. As with regards to the real property tax, management and its legal counsel believes that the STOA also provides MNTC with legal recourse in order to protect its lawful interests in case there is a change in existing laws which makes the performance by MNTC of its obligations materially more expensive.
Others MNTC is a co-respondent [together with TRB, PNCC, other tollways operators, TMC, MPTDC (then FPIDC) and BHC] in two SC cases, where, based on the following allegations, the petitioners’ claims that the STOA is null and void:
§ the negotiation and execution of the STOA failed to undergo public bidding in accordance with applicable laws and regulations of the Philippines;
§ the STOA granted to MNTC a 30-year franchise for the construction, maintenance and operation of the NLE in violation of the PD under which the PNCC’s franchise were granted and the Philippine Constitution; and
§ the provisions of the STOA providing for the establishment and adjustment of toll rates violate the statutory requirement for the TRB to conduct public hearings on the level of authorized toll rates.
The SC, in a decision dated October 19, 2010, among others, declared as valid and constitutional the STOA. Petitioner Francisco filed a motion for reconsideration dated November 5, 2010 while some of the petitioners in Marcos, et al. v. TRB et al. filed a partial motion for reconsideration dated October 8, 2010. On January 24, 2011, MNTC filed a consolidated comment to the aforementioned motions for reconsideration.
Management believes that the petitioners’ claims are without merit and is vigorously contesting the case. As of February 23, 2011, the cases are still pending.
MNTC is also a party to other cases and claims arising from the ordinary course of business filed by third parties which are either pending decisions by the courts or are subject to settlement agreements. The outcome of these claims cannot be presently determined. In the opinion of management and the Company’s legal counsel, the eventual liability from these lawsuits or claims, if any, will not have a material adverse effect on the Company’s financial position and financial performance.
*SGVMC214089*
INDEPENDENT AUDITORS’ REPORT ON SUPPLEMENTARY SCHEDULES The Stockholders and the Board of Directors Metro Pacific Tollways Corporation 10th Floor, MGO Building Legaspi corner, Dela Rosa Streets Legaspi Village, Makati City We have audited in accordance with Philippine Standards on Auditing, the consolidated financial statements of Metro Pacific Tollways Corporation (a subsidiary of Metro Pacific Investments Corporation) and Subsidiaries included in this Form 17-A and have issued our report thereon dated February 23, 2011. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the Index to Financial Statements and Supplementary Schedules are the responsibility of the Company’s management. These schedules are presented for purposes of complying with Securities Regulation Code Rule 68.1 and SEC Memorandum Circular No. 11, Series of 2008 and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respect the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. SYCIP GORRES VELAYO & CO. Marydith C. Miguel Partner CPA Certificate No. 65556 SEC Accreditation No. 0087-AR-2 Tax Identification No. 102-092-270 BIR Accreditation No. 08-001998-55-2009, June 1, 2009, Valid until May 31, 2012 PTR No. 2641544, January 3, 2011, Makati City February 23, 2011
SyCip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Philippines
Phone: (632) 891 0307 Fax: (632) 819 0872 www.sgv.com.ph BOA/PRC Reg. No. 0001 SEC Accreditation No. 0012-FR-2
A member firm of Ernst & Young Global Limited
1
Metro Pacific Tollways Corporation and Subsidiaries
Index to Financial Statements and Supplementary Schedules
December 31, 2010
In compliance with Securities Regulation Code 68.1:
Schedule Title
A Marketable Securities - (Current Marketable
Equity Securities and Other Short-term Cash
Investments)
See Page 2
B Amounts Receivable from Directors, Officers,
Employees, Related Parties and Principal
Stockholders (Other than Related Parties)
Not Applicable
C Non-Current Marketable Equity Securities, Other
Long-Term Investments in Stock and Other
Investments
See Pages 3-4
D Indebtedness of Unconsolidated Subsidiaries and
Related Parties
See Page 5
E Intangible Assets - Other Assets See Page 6
F Long Term Debt See Pages 7 – 9
G Indebtedness to Related Parties (Long-Term Loans
from Related Companies)
Not Applicable
H Guarantee Securities of Other Issuers Not Applicable
I Capital Stock See Page 10
In compliance with SEC Memorandum Circular 11, Series of 2008:
Retained Earnings Available for Dividend
Declaration
See Page 11
2
Metro Pacific Tollways Corporation and Subsidiaries
December 31, 2010
Schedule A. Marketable Securities – (Current Marketable Equity Securities and
Other Short-term Cash Investments)
Name of Issuing entity and
association of each issue (1)
Number of shares or
principal amount of bonds
and notes
Amount shown
in the balance
sheet (2)
Income received
and accrued
Philippine Government –
Investment in Treasury bonds*
P=50,000,000 P=51,812,500 P=4,250,000
* Classified as available-for-sale financial assets in the consolidated balance sheet as of December 31, 2010.
3
Metro Pacific Tollways Corporation and Subsidiaries
December 31, 2010
Schedule C. Non-Current Marketable Equity Securities, Other Long-Term Investments in Stock, and Other Investments
Beginning Balance Additions Deductions Ending Balance
Name of Issuing
entity and
description of Investment (1)
Number of shares
or principal
amount of bonds and notes (2)
Amount in Pesos Equity in earnings
(losses) of
investees for the period (3)
Other (4) Distribution of
earnings by investees (5)
Other (6) Number of
shares or
principal
amounts of
bonds and notes (2)
Amount in Pesos
(7)
Dividends
received from
investments not
accounted for by
the equity method
Tollways
Management Corporation –
Investment in stocks
174,800 shares
(46%)
P=124,783,272 P=162,668,220 P=– P=146,740,000 P=– 174,800 shares P=140,711,492 –
Philippine
Government –
Investment in
Treasury bonds*
P=400,600,000 400,600,000 – 24,093,000 – 51,812,500 P=350,600,000 372,280,500 –
Citra Metro
Manila Tollways
Corporation
(CMMTC) –
Investment in
unquoted equity
securities*
1,379,674 shares (2.7%)
– – 140,953,009 – – 1,379,674 shares
140,953,009 –
P=525,383,272 P=162,668,220 P=165,046,009 P=146,740,000 P=51,812,500 P=653,945,001 –
* Classified as available-for-sale financial assets in the consolidated balance sheet as of December 31, 2010.
4
As of December 31, 2009, HTM investments amounted to P=400.6 million and stated at amortized costs. In August 2010, Manila North Tollways Corporation
(MNTC) sold P=300.0 million of its investment in retail treasury bonds and invested the same for new retail treasury bonds with higher yield at 5.9% from 5.3%. The
maturity date of the new retail treasury bonds is August 2015. As of December 31, 2010, bonds amounting to P=51.8 million which will mature on July 31, 2011, was
reclassified to current assets.
The fair value of the AFS financial assets is based on quoted market price of the ROP government bonds as of December 31, 2010. Gain on fair value change in
AFS financial assets for the year ended December 31, 2010 amounting to P=16.4 million (net of tax of P=7.0 million) is recognized as other comprehensive income.
As a result of the acquisition of Metro Strategic Infrastructure Holdings, Inc. (MSIHI), the Company recognized MSIHI‟s investment in CMMTC in the consolidated
balance sheet as of December 31, 2010.
5
Metro Pacific Tollways Corporation and Subsidiaries
December 31, 2010
Schedule D. Indebtedness of Unconsolidated Subsidiaries and Related Parties
Name of Related parties (1) Balance at beginning of period Balance at end of period (2)
Metro Pacific Investments Corporation P=462,638,616 P=462,638,616
Tollways Management Corporation 142,786,879 125,672,577
Philippine Long Distance Telephone
Company (PLDT) – 11,083,611
Easytrip Services Corporation 72,457 9,590,962
Egis Projects Philippines, Inc (EPPI) 27,020,929 –
P=632,518,881 P=608,985,766
Nature and purpose of any material increase
As of December 31 2010, receivable from PLDT amounting to P=11.1 million pertains to the Fiber
Cable Overlay Project along Segment 8.1.
The decrease in advances to EPPI in 2010 is due to the application of mobilization advances against
progress billings received from EPPI in relation to the Fixed Operating Equipment Design, Supply
and Installation for Segment 8.1 Project. The construction of Segment 8.1 has been substantially
completed on June 5, 2010.
6
Metro Pacific Tollways Corporation and Subsidiaries
December 31, 2010
Schedule E. Intangible Assets - Other Assets
Deduction (3)
Description (1) Beginning balance
Additions at cost (2)
Charged to cost and expenses
Charged to other accounts
Other changes additions
(deductions)
Ending balance
Service Concession Assets:
Cost P=18,228,898,877 P=1,253,064,438 P=– P=– P=– P=19,481,963,315
Accumulated Amortization 3,104,923,117 – 559,180,335 – – 3,664,103,452
Carrying Value 15,123,975,760 1,253,064,438 559,180,335 – – 15,817,859,863
Goodwill* 13,565,061 – – – 1,460,988 15,026,049
TOTAL P=15,137,540,821 P=1,253,064,438 P=559,180,335 P=– P=1,460,988 P=15,832,885,912
*Included in “Other noncurrent assets” account in the consolidated balance sheet.
Description of Other Changes
Additional goodwill in 2010 pertains to provisional goodwill arising from the acquisition of
Metro Strategic Infrastructure Holdings, Inc in December 2010.
7
Metro Pacific Tollways Corporation and Subsidiaries
December 31, 2010
Schedule F. Long Term Debt
Title of Issue and type of obligation (1)
Amount authorized by
indenture
Amount shown under caption
"Current portion of long-term debt" in
related balance
sheet (2)
Amount shown under caption
"Long-Term Debt" in related
balance sheet (3)
Interest rates, amounts or number of periodic installments, and maturity
dates.
US dollar fixed rate loans:
Export Finance and Insurance Corporation
$15,000,000 P=308,096,178 P=– Interest rate: 8.03%
Payment terms:
Payable in 16 equal semi-annual
installments starting December 15, 2006 up to June 15, 2014 (maturity
date)
On December 7, 2010, MNTC issued
an irrevocable prepayment notice
indicating MNTC‟s firm intention to prepay in full all outstanding
amounts under the US Dollar loan
and ADB Direct Loan facilities on January 14, 2011
Credit Agricole Corporate and Investment Bank (formerly Calyon
S.A. Corporate and Investment
Bank)
$14,950,000 P=314,945,870 – Interest rate: 6.13%
Payment terms:
Payable in 16 equal semi-annual installments starting December 15,
2006 up to June 15, 2014 (maturity
date)
On December 7, 2010, MNTC issued
an irrevocable prepayment notice indicating MNTC‟s firm intention to
prepay in full all outstanding
amounts under the US Dollar loan facilities on January 14, 2011
US dollar floating rate loans:
Asian Development Bank (ADB) Loan – Complementary Finance
Scheme
$20,000,000 P=384,300,597 – Interest rate: LIBOR + 2.75%
Margin
Payment terms:
Payable in 16 equal semi-annual
installments starting December 15,
2006 up to June 15, 2014 (maturity date)
On December 7, 2010, MNTC issued an irrevocable prepayment notice
indicating MNTC‟s firm intention to
prepay in full all outstanding amounts under the US Dollar loan
and ADB Direct Loan facilities on
January 14, 2011
USD Bank Facility $32,050,000 P=616,006,080 – Interest rate: LIBOR + 3.00%
Margin
Payment terms:
8
Title of Issue and type of obligation (1)
Amount authorized by
indenture
Amount shown under caption
"Current portion of long-term debt" in
related balance
sheet (2)
Amount shown under caption
"Long-Term Debt" in related
balance sheet (3)
Interest rates, amounts or number of periodic installments, and maturity
dates.
Payable in 16 equal semi-annual
installments starting December 15,
2006 up to June 15, 2014 (maturity date)
On December 7, 2010, MNTC issued an irrevocable prepayment notice
indicating MNTC‟s firm intention to
prepay in full all outstanding amounts under the US Dollar loan
and ADB Direct Loan facilities on
January 14, 2011
Peso floating rate loan -
Asian Development Bank Loan – Direct
P=597,960,000 P=435,454,674 – Interest rate: PHIREF + 4.66%
Margin
Payment terms:
As of March 11, 2009 (Actual Conversion Effective Date), payable
in 11 equal semi-annual installments
starting June 15, 2009 up to June 15, 2014 (maturity date)
On December 7, 2010, MNTC issued
an irrevocable prepayment notice
indicating MNTC‟s firm intention to
prepay in full all outstanding
amounts under the US Dollar loan
and ADB Direct Loan facilities on January 14, 2011
PNB Bank Loan P=2,100,000,000 P=100,109,694 P=1,978,836,653 Interest rate: six (6)-month PDSTF plus a spread of 0.50%.
Payment terms:
Payable in 10 consecutive semi-
annual installments on each
Repayment Date commencing on June 15, 2011 to December 15, 2015
(maturity date).
On November 22, 2010, the interest
rate of the PNB Loan was amended
from fixed (9.61% per annum) to floating rate based on a six (6)-month
PDSTF plus a spread of 0.50%.
9
Title of Issue and type of obligation (1)
Amount authorized by
indenture
Amount shown under caption
"Current portion of long-term debt" in
related balance
sheet (2)
Amount shown under caption
"Long-Term Debt" in related
balance sheet (3)
Interest rates, amounts or number of periodic installments, and maturity
dates.
Peso fixed rate notes and loans:
Fixed Rate Corporate Notes P=5,500,000,000 P=17,465,555 P=5,199,117,174 Interest rate: 9.75% per annum
Payment terms:
June 15, 2007 - P=27,500,000
June 15, 2008 - 27,500,000
June 15, 2009 - 55,000,000 June 15, 2010 - 55,000,000
June 15, 2011 - 55,000,000 June 15, 2012 - 55,000,000
June 15, 2013 - 55,000,000
November 17, 2013 (maturity date) - P=5,170,000,000
Total P=2,176,378,648 P=7,177,953,827
10
Metro Pacific Tollways Corporation and Subsidiaries
December 31, 2010
Schedule I. Capital Stock (1)
Title of Issue (2)
Number of
Shares
authorized
Number of shares
issued, subscribed
and outstanding
as shown under
related balance sheet caption
Number of
shares reserved
for options,
warrants,
conversion and other rights
Number of
shares held
by related parties (3)
Directors,
officers and
employees
Others
Common 5,400,000,000 4,978,054,777 None None 11 None
11
Metro Pacific Tollways Corporation
10th Floor MGO Bldg. Legaspi cor. Dela Rosa Sts. Legaspi Village Makati City
December 31, 2010
Cash Dividends
Unappropriated Retained Earnings, as adjusted to available
for dividend distribution, beginning
Unappropriated Retained Earnings, beginning
(before adjustments to available for dividend
distribution) P=200,120,744
Less: Treasury shares (193,597,437) P=6,523,307
Add: Net income actually earned/realized during the period 1,046,970,707
1,053,494,014
Less: Dividend declarations during the period (1,191,708,217)
TOTAL RETAINED EARNINGS, END
AVAILABLE FOR DIVIDEND (P=138,214,203)
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